Report summary

The profit cycle picked up, and 24H1 turned losses into profits

24H1 achieved operating income of 2.494 billion yuan, a year-on-year increase of 46.04%; net profit attributable to shareholders of listed companies was 0.124 billion yuan, turning a year-on-year loss into a profit. The company's strategy promoted an increase in the scale of aquaculture production. In the first half of '24, the company achieved revenue of 1.94 billion yuan from the farming business, accounting for 77.8% of the overall revenue, an increase of 10.4 pcts over the same period last year. Benefiting from the recovery of the pig cycle, the average sales price of 24H1's commercial pigs was 14.70 yuan/kg, up 5.60% from the same period last year; the rise in pig prices led to an increase in profitability. The gross profit margin of 24H1's breeding business was 13.78%, up 22.42 pcts from the previous year. 24H1 achieved a deduction of non-net profit of 0.137 billion yuan, an increase of 152.52% over the previous year. Among them, non-recurring profit and loss were mainly affected by asset and pig disposal losses of 13.717 million yuan.

Combines scale growth and cost advantages

The company's farming business is being promoted with high quality, expanded reasonably in scale, and continuously improved in terms of cost. Quantitatively, the size of the company is expected to continue to expand. 24H1 sold a total of 1.0924 million pigs (outbound sales of 0.9201 million heads and internal sales of 0.1723 million heads), an increase of 62.83% over the same period of the previous year; slaughtered 0.8616 million pigs, an increase of 2.28% over the same period last year. In the future, the company will continue to promote healthy growth in scale. The company will be able to breed 0.098 million sows by the end of June, and it is estimated that the number of sows kept will reach 0.13 million by the end of 2024. The company's target is 2.5 million in 2024 and 3.5 million in 2025. In terms of cost, the company has outstanding internal and external advantages, excellent farming, and costs continue to decline. The company is located in the southwest region, and the natural conditions for preventing plague are outstanding in mountainous areas of Yunnan. In addition, the company introduced PIC pig breeding, established high-quality breeding stocks, in-depth breeding management, and excellent breeding results. 24H1's farming PSY continued to be 27-28, and the feed-to-meat ratio remained at 2.5-2.6. The full cost for 24Q2 is 13.9 yuan/kg, down 0.6 yuan/kg from Q1. The full cost target for the whole year must be within 14 yuan/kg.

Enterprises with advantages in pig breeding have long-term allocation value

In the medium to long term, as the industry's production capacity returns to a reasonable level of fluctuation, the pig breeding industry as a whole will maintain a certain level of profit under long-term stability, while enterprises with breeding management and cost advantages in the industry are expected to maintain good profitability. As an outstanding aquaculture enterprise in the sector, while growing in scale, Shennong Group is also continuously focusing on and improving shareholder returns. While the company has growth attributes, the long-term dividend allocation value is expected to become more prominent in the future.

Investment advice

Shennong Group is a leading national agricultural industrialization enterprise integrating feed production, pig breeding, slaughter and processing, and deep food processing. In the medium to long term, while the company has growth attributes, the long-term dividend allocation value is expected to become more significant in the future. We expect the company's net profit to be 0.297 billion yuan, 1.004 billion yuan, and 1.206 billion yuan respectively, and EPS will be 0.57 yuan, 1.91 yuan, and 2.30 yuan respectively. The corresponding PE for 24, 25, and 26 will be 48.09, 14.24, and 11.86 times, respectively, to maintain the rating and give a “buy” rating.

Risk warning

Pork consumption and prices fall short of expectations, risk of epidemic diseases, etc.