Superstar Agriculture and Animal Husbandry released its 24th mid-year report: The company achieved revenue of 2.23 billion yuan in the first half of 2024, +13.13% year-on-year, and achieved net profit to mother of -0.04 billion yuan, reducing losses over the previous year. 24Q2 achieved revenue of 1.28 billion yuan, +18.89% year-on-year, and realized net profit of 0.09 billion yuan to mother, reversing year-on-year losses.

The cost of pig farming continues to improve. The company listed 1.0945 million pigs in the first half of '24 (1.2382 million in the same period last year), of which 1.0618 million were commercial pigs, +24.69% over the same period last year. Thanks to the decline in feed costs and the improvement of the company's production performance, we expect the company's breeding costs to continue to decline. According to the investor relations activity record table disclosed by the company, the company's pig breeding cost in June was 6.44 yuan/kg, and the full cost was within 7 yuan/kg. The production cost was significantly lower than 7.34 yuan/kg for the whole year of '23, and the production cost of 6.91 yuan/kg in the first quarter of '24. We expect that with the gradual full production of the company's Dechang project and continuous pursuit of animal disease prevention and production efficiency improvements, the company's farming costs may drop further in the future.

The expansion of productive biological assets lays the foundation for future growth. In the mid-year report, the company's productive biological assets were 0.468 billion yuan, a sharp increase of 24.1% compared to 0.377 billion yuan in 24Q1. Considering the decline in the book value of sows that can be raised due to the decline in breeding costs, we expect the number of sows the company can breed or increase at a high rate, which also lays the foundation for the company's future increase in sales volume.

The balance ratio remained flat month-on-month, and capital expenditure declined significantly. Other key financial indicators. Balance ratio: The balance ratio reported by the company was 62.2%, which is basically the same as 24Q1. This may be the same as the profit period of pig farming in the first half of the year, and the leather business dragged down performance, so the debt ratio is still high. It is expected that as the company's profits improve in the future, the debt ratio level will also decline. Capital expenditure: The company's capital expenditure for the first half of '24 was 0.53 billion yuan, down 0.09 billion yuan year on year, and the mid-year report was 0.46 billion yuan, down 0.92 billion yuan year on year, up 0.06 billion yuan from the end of the first quarter of '24. As the company's Dechang project was put into operation, large asset expenses declined. At the same time, the company gradually expanded the scale of intensive “company+farmer” farming since this year, and future capital expenses may also decrease.

Profit forecasting and investment advice. We expect the company's breeding costs to continue to improve, while pig prices may remain at a relatively high level, and the company's profit is expected to improve further in the second half of the year. Overall, we forecast EPS of 1.00/1.60/2.03 yuan for 24-26, respectively. Considering the company's low cost and high growth rate, the company was given 3.0 to 3.3 times PB in 24 years, with a corresponding reasonable value range of 21.2 to 23.3 yuan, giving it a “superior to the market” rating.

Risk warning: In the event of an epidemic that exceeded expectations, pig prices fell far short of expectations, and the company's sales volume fell short of expectations of 69,696