Brief performance review

On August 26, 2024, the company disclosed the 2024 semi-annual report. 24H1 achieved revenue of 46.758 billion yuan, +13.49%; realized net profit to mother of 1.327 billion yuan, +128.31% 2402, achieved operating income of 24.91 billion yuan, +17.34% year over year; realized net profit of 2.563 billion yuan, +232.16% year over year.

Management analysis

Pig and chicken resonance achieved good profits, and the results of cost reduction and efficiency were remarkable: benefiting from rising pig and yellow chicken prices and continued cost reduction and efficiency, the company turned losses into profits in the first half of the year.

24H1 sold 14.37 million pigs, +22% year over year; 2402 sold 7.19 million pork pigs, +16% year over year; 24H1 sold 0.4378 million piglets. 24H1 sold broiler 0.548 billion feather, -1.04% year over year; 2402 sold broiler 0.28 billion feather, -2.2% year over year. Judging from the sales price, the average sales price of the company's Q2 commercial pigs was about 16.34 yuan/kg, +14% year over year; the average sales price of broiler Q2 was about 13.57 yuan/kg, +1.7% year over year. The rise in livestock and poultry product prices led to an improvement in profits. Benefiting from the improvement of the company's breeding efficiency and the reduction in feed costs, we estimate that the company's comprehensive cost of Q2 pig breeding is about 14.2 yuan/kg. With the gradual optimization of the company's production indicators, the cost is expected to continue to decline.

Production capacity has increased rapidly, and the debt ratio has declined: as of the end of June, the company's productive biological assets were 4.836 billion yuan, an increase of 0.044 billion yuan over the end of Q1. The company's production capacity is expected to increase from the end of 01, laying a solid foundation for future sales growth. As profits improved, the company took the initiative to reduce the balance ratio level. As of the end of 2402, the balance ratio was 58.95%, down 4.42pct from 2401, and the company's operations were steady and improving.

Profit Forecasts, Valuations, and Ratings

The pig price center has continued to rise since this year. With the arrival of the peak consumption season in the second half of the year, it is expected that pig prices will still have room to rise, while the slow recovery rate on the capacity side may prolong the industry's prosperity. In terms of yellow feather chicken breeding, yellow feather chicken production capacity has now been fully reduced. With the arrival of the peak consumption season, yellow chicken prices are expected to follow pig prices to achieve better performance. The global soybean supply is relatively relaxed this year. It is expected that feed costs will still have some room to decline, and the farming business is expected to be relatively profitable. As an industry leader, the company continues to optimize breeding indicators, has excellent performance delivery capabilities, and is expected to fully benefit from the upward cycle. We expect the company to achieve net profit of 10.3/12.6/11.1 billion yuan in 24-26, reversing the year-on-year losses/ +23%/-12%; corresponding to EPS of 1.55/1.90/1.68 yuan. The current price of the company's stock in 24/25 corresponds to a PE valuation of 11/9X, maintaining a “buy” rating.

Risk warning

Risk of pig price fluctuation; risk of animal disease; risk of fluctuation in raw material prices.