Q2 Profit is under pressure, maintaining a “buy” rating

The drop in chicken prices put pressure on the company's 24H1 and Q2 profits. The company's fresh product production capacity was quickly released, and 24H1 sales volume was +40% year-on-year. Considering that the price of 24H1 chicken falls short of expectations, and that white feather breeding chickens are still sufficient, we lowered our profit forecast. The net profit for 2024/25/26 is 0.024/0.179/0.247 billion yuan (the previous forecast for 2024/25 was 0.226/0.315 billion yuan), and the corresponding BVPS is 5.45/6.35/7.58 yuan. Referring to the comparable company Wind in 2024, the consistent expectation of 1.34x PB. Considering that Chunxue food preparation business has a relatively large share, profit level and stability, or is superior to traditional white feather chicken breeding companies, we gave Chunxue Foods 1.6 x PB in 2024, corresponding to a target price of 8.72 yuan, maintaining a “buy” rating.

Reduced chicken prices dragged down profits, fresh product sales +40% year-on-year

The company achieved revenue of 1.164 billion yuan (yoy -15.47%) and net profit of 4.35 million yuan (year-on-year loss); of these, Q2 achieved revenue of 0.635 billion yuan (yoy -7.68%, qoq +20.09%) and net profit of 1.62 million yuan (yoy -69%, qoq +127%). Looking at Taiyuan Foods 24H1's profit of 21.95 million yuan (-23% compared to the same period), we analyzed that the company's prepared food business may still be profitable. The losses were mainly due to a significant drop in the price of fresh chicken, and at the same time, the gradual release of the company's newly put into production fresh production capacity caused a clear loss drag on the fresh business. The average price of chicken in the main production area of 24H1 was about 9,580 yuan/ton, -16% year over year. The company sold 0.063 million tons of fresh chicken products, +40% year over year. Q2 The price of chicken products is still low, and profits continued to be under year-on-year pressure. Month-on-month losses turned into profits, or mainly due to falling prices of feed ingredients and a gradual decline in the company's capacity utilization rate, which led to a decline in breeding costs per unit.

Continue to promote brand building and gradually release fund-raising production capacity

Chunxue Foods is currently one of the few large white feather chicken food companies that mainly produce and sell prepared chicken products. The company continues to make efforts in terms of brands and channels, and is expected to achieve significant growth in performance with the help of the gradual release of new production capacity. In terms of brand, the company has established a certain level of brand awareness both online and offline. Offline, 80% of its products have entered the domestic TOP20 supermarket system, and the “Fresh” brand jointly created online and with JD has been in the TOP1 fresh chicken sales volume in JD for six consecutive years. In terms of channels, the company adopted a simultaneous development strategy for domestic and foreign markets. 24H1 exported 0.01 million tons of prepared chicken products, +25% over the same period, accounting for 25% of export revenue; it achieved full coverage of B-side and C-side users through a multi-level sales channel layout. In terms of production capacity, 24H1 is in the early stages of the company's fund-raising project “Smart Factory Construction Project with an Annual Output of 0.04 Million Tons of Chicken Preparation Products”. Production and sales of prepared products are expected to increase as the company's new production capacity is gradually released.

Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.