Company Announces 2024 Interim Report. The company achieved total revenue of 46.758 billion yuan in the first half of 2024, up 13.49% year on year, net profit to mother of 1.327 billion yuan, up 128.31% year on year; total operating income of 24.91 billion yuan in the second quarter, up 17.36% year on year, and net profit of 2.563 billion yuan, up 232.16% year on year. Looking at the split in the second quarter, the profit from the company's pig farming business was about 1.8 billion yuan, the profit from the chicken business was about 0.8 billion yuan, the profit from other related and supporting businesses exceeded 0.1 billion yuan after being offset by headquarters expenses, and the profit and loss of minority shareholders was 0.1 billion yuan.

The quality of the pig sector has been improving at a steady rate, and costs have been further optimized. In the first half of 2024, the company sold 14.37 million pork heads, an increase of 22% over the previous year. We estimate that the average sales weight was 121.9 kg, with an average sales price of 15.32 yuan/kg; in the second quarter, the company sold 7.194 million pigs, an increase of 16% over the previous year. We estimate that the average sales weight was 123.7 kg, and the average sales price was 16.34 yuan/kg. In terms of profit, the company's comprehensive pig breeding cost fell to 14.8 yuan/kg in the first half of the year, down 2.4 yuan/kg year on year. In the second quarter, the company's pig breeding performance continued to improve. The comprehensive cost of pig breeding fell to 14.2 yuan/kg in the second quarter, down 1 yuan/kg from quarter to quarter, and the cost of pig breeding dropped to 13.8 yuan/kg in June. In terms of production capacity, by the end of June 2024, the company was able to breed about 1.64-1.65 million sows, an increase of 0.09-0.1 million over the end of March, with sufficient backup sows.

The cost of raising chickens has been declining steadily, and profit flexibility increased in the second quarter. In the first half of 2024, the company sold 0.548 billion broilers, a year-on-year decrease of 1.04%. We estimate that the average sales price was 13.3 yuan/kg; in the second quarter, the company sold 0.28 billion broilers, a decrease of 2.2% over the previous year. We estimated the average sales price was 13.6 yuan/kg. In terms of profit, in the first half of the year, the full cost of the company's fur chicken was reduced to 12.4 yuan/kg, down 1.6 yuan/kg from the previous year. We estimate that the full profit for a single chicken fell to 12.2 yuan/kg in the second quarter, down 0.6-0.8 yuan/kg from quarter to quarter. We estimate that the profit for a single feather was about 2.9 yuan, and the full cost of releasing a chicken in June was about 11.8 yuan/kg.

Balance sheet repair has been accelerated, and the debt ratio is expected to fall to 55% during the year. Thanks to rising prices of major livestock and poultry products, combined breeding costs continued to drop, the company's balance sheet was repaired at an accelerated pace, and the company accelerated repayment of some of its interest-bearing liabilities. At the end of the second quarter, the company's balance ratio fell below 59%, down about 2.5 pct from the end of last year and 4.4 pct from the end of the first quarter. Currently, the company has sufficient capital reserves. If the market is better in the future, the company will continue to repay its debts and reduce its debt ratio. The company hopes to reduce its balance ratio to less than 55% during the year.

Investment advice: Considering the company's cost improvement and current pig and chicken price performance, we raised our 2024-2025 profit forecast and adjusted the 2026 profit forecast. We expect the company's net profit to be 16.07 billion yuan, 15.11 billion yuan, and 9.67 billion yuan in 2024-2026, +351.4%, -5.9%, and -36%, respectively. Currently, it corresponds to 2024 PE only 7x, maintaining a “buy” rating.

Risk warning: risk of major epidemics, risk of fluctuating pig prices, risk of raw material price fluctuations, cash flow risk, food safety risk.