Event: The company released its 2024 interim report. 24H1's revenue was 2.494 billion yuan, +46.04% year over year; net profit to mother was 0.124 billion yuan, turning a year-on-year loss into profit (-0.264 billion yuan for the same period of 23 years); net profit after deducting non-return to mother was 0.137 billion yuan, which turned a year-on-year loss into profit (-0.26 billion yuan for the same period in '23). Among them, 24Q2 shared revenue of 1.412 billion yuan, +73.88%; net profit to mother was 0.128 billion yuan, which turned a year-on-year loss into profit (-0.158 billion yuan for the same period in '23); net profit after deducting non-return to mother was 0.131 billion yuan, which turned a year-on-year loss into profit (-0.156 billion yuan for the same period in '23).

Q2 The company's performance turned a loss into a profit, and profitability improved significantly. The 24Q2 company's performance turned a loss into profit mainly due to the sharp rise in the volume and price of the pig breeding business. By business, aquaculture, feed, and slaughter contributed 1.941 billion yuan, 1.055 billion yuan, and 0.711 billion yuan respectively, +68.66%, -5.46%, and +34.62% over the same period last year. H1's comprehensive gross profit margin was 12.23%, +10.91 pct year on year; the cost ratio for the period was 8.14%, -1.84 pct year on year. Looking at it alone, the Q2 company's comprehensive gross profit margin was 17%, +15.43pct year on year, which improved markedly from month to month; the cost ratio for the period was 7.32%, -4.69pct year on year.

H1's pig production rate was +63% year-on-year, leading the industry in total cost. 24H1 sold a total of 1.0924 million pigs, +62.83% year over year, including outbound sales of 0.9201 million heads and internal sales of 0.1723 million heads; average pig sales price was 14.7 yuan/kg, +5.6% year over year; gross margin was 13.78%, or +22.42pct. H1's fixed assets, projects under construction, and productive biological assets were 2.805 billion yuan, 0.217 billion yuan, and 0.312 billion yuan respectively, +31.31%, -40.66%, and +70.05% compared with the same period (the company's breeding scale expanded, and the number of breeding pigs increased). The company's pig breeding business is mainly distributed in Yunnan, Guangxi, Guangdong and other provinces. It is estimated that with the successive commissioning of projects under construction, production capacity will reach 3 million heads in 24 years and 4 million heads in 25 years. In July, the company was able to breed 0.104 million sows. Production capacity is growing rapidly. The company plans to increase 0.03-0.04 million sows every year. At the cost level, according to the announcement, the full cost of the company's H1 and Q2 pigs was 14.2 yuan/kg and 13.9 yuan/kg respectively. In July, the full cost of pigs was 13.7 yuan/kg, and the cost of weaning piglets was 308 yuan/head. The company has a leading cost advantage in the industry. In terms of listing, the 25-year target is 3.5 million, followed by an annual growth target of 0.5-1 million.

The slaughter volume of H1 pigs is 86 square meters, and the food processing business is actively arranged. 24H1 slaughtered a total of 0.8616 million pigs, +2.28% year over year; gross profit margin was 4.73%, -6.64pct year on year. The company is actively developing downstream food processing, using “Shennong Assured Meat” created by the entire industry chain as a raw material to give full play to the geographical and resource advantages of Yunnan to produce safe and secure food with local characteristics. With the commissioning of Yunnan Chengjiang Shennong Food Co., Ltd.'s 24,000-ton food deep processing project, future production capacity will gradually be released, and farming+slaughter+food collaboration will help the company develop sustainably.

Investment proposal: The company focuses on the pig industry chain to form a complete industrial chain integrating feed processing and sales, pig breeding and sales, pig slaughter, and fresh pork food sales. Benefiting from the continued improvement in pig prices in the future, the company's performance may be expected. We expect the company's EPS to be 1.4 yuan and 2.87 yuan respectively in 2024-2025, corresponding to PE of 19 times and 10 times, maintaining the “recommended” rating.

Risk warning: risk of fluctuations in pig and pork prices; risk of price fluctuations of major raw materials; risk of animal diseases; risk of natural disasters; risk of food safety; policy risk, etc.