24Q2 achieved profit of 0.128 billion yuan, close to the forecast limit. The increase in pig prices was compounded by cost improvements over both year and month over month. The company achieved net profit of 0.128 billion yuan to mother in 24Q2, reversing losses year over month. 24H1 financial fundamentals remained steady, and operating cash flow improved markedly; the company maintained steady operation and the volume of sales expanded steadily. We maintain the company's 24-26 profit forecast of 0.762/1.6/2.07 billion yuan, and the corresponding BVPS of 9.44/12.23/15.92 yuan. Referring to the comparable company's 2024E average valuation value of 2.61 XPB, considering the company's strong farming cost advantage, the company was given 4.24XPB in 2024, corresponding to a target price of 40.02 yuan. Maintain a “buy” rating.

The recovery in pig prices combined with cost improvements. The company achieved revenue of 2.494 billion yuan (yoy +46.04%) of Shennong Group's 24H1 in 24Q2 and net profit of 0.124 billion yuan (year-on-year reversal, close to the profit forecast limit). Among them, Q2 achieved revenue of 1.412 billion yuan (yoy +73.88%, qoq +30.46%) and net profit of 0.128 billion yuan (year-on-month loss). The rise in pig prices combined with the increase in sales volume helped the company's 24H1 revenue increase year-on-year. The company sold a total of 1.09 million pigs at 24H1, an increase of 63% over the previous year. The rise in pig prices combined with the company's cost improvements helped the company turn losses into profits in 24H1 and 24Q2. We estimate that the 24Q2 pig sector achieved a profit of about 0.132 billion yuan, corresponding to the total cost of raising pigs about 14 yuan/kg. Other sectors, the feed, slaughter, and food sectors, each recorded losses of varying degrees due to the year-on-year decline in feed sales, low slaughter and production, and production capacity in the food business still climbing. It is estimated that the total loss of the three is about 0.004 billion yuan.

24H1 operating cash flow improved markedly, and the company's cost was among the highest in the industry. According to the company's announcement, the full cost of raising pigs in June 2024 was about 13.7 yuan/kg, and remained stable from month to month in July. Looking at the whole year, we expect a high probability of achieving the company's cost target of 14 yuan/kg. Driven by rising pig prices, the company's 24H1 net operating cash flow was 0.296 billion yuan, an increase of 331% over the previous year. By the end of 24H1, the company's balance ratio was 30.8%, up about 1.25pct from 24Q1. It was mainly due to an increase in the company's accounts payable and notes payable, or due to normal financing needs. The company's balance ratio is still low, and capital is abundant. By the end of 24H1, the company's monetary capital was 0.811 billion yuan, an increase of 46% over the previous year. The company pursues steady management and does not blindly pursue the expansion of sales volume. The 2024 sales target is 220 to 2.3 million, +45% to 51% compared to the same period last year.

Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.