On September 18, 2024, Wen's Co., Ltd. issued a repurchase report. The company plans to use 0.9-1.8 billion yuan of its own capital to buy back the company's common shares through centralized bidding transactions. The repurchase price will not exceed 27.01 yuan/share. The repurchase period is no more than 12 months from the date of this announcement.

Key points of investment

The repurchase plan form develops confidence, and equity incentives motivate employees. In this repurchase plan, Wen's shares will use the company's own funds to repurchase common shares, and the repurchased shares will be used to implement employee stock ownership plans or equity incentives. The repurchase plan fully demonstrates Wen's confidence in the company's own future development prospects and high recognition of its own value. At the same time, the plan will help the company fully mobilize the enthusiasm of outstanding employees, enhance team cohesion, further improve the long-term incentive mechanism, and ensure the long-term healthy development of the company team. Based on the maximum repurchase price and the upper and lower repurchase amount limits, the estimated number of shares to be repurchased is 33.321-66.642 million shares, accounting for 0.50%-1.00% of the total share capital after the market closes on June 30, 2024.

H1's performance has improved steadily, and the number of pigs released is growing brilliantly

2024H1 Wen's shares achieved operating income of 46.758 billion yuan, an increase of 13.49% year on year; realized net profit of 1.327 billion yuan and net profit of 1.358 billion yuan after deducting net profit from mother, all of which turned a loss into a profit year over year. Looking at 2024H1 by business, pig breeding and broiler breeding achieved revenue of 28.157/16.676 billion yuan respectively, with year-on-year changes of 28.69%/-0.93%, respectively. The number of pigs released in the pig breeding business grew rapidly. From January to August, the total number of pigs released was 19.0514 million, an increase of 18.62% over the same period in 2023, of which 0.8014 million piglets were sold. At the end of July, the number of breeding sows was 1.64-1.65 million, and reserve sows were sufficient.

The cost of pig+chicken breeding is on a downward trend, and there is still room for decline. 2024H1 Wenshi Shares's pork pig and broiler business breeding costs continue to show a downward trend. The comprehensive cost of pig breeding dropped from 7.8-7.9 yuan/kg in January 2024 to 7.1 yuan/kg in May, and the overall cost of H1 pig breeding fell to about 7.4 yuan/kg. Along with the decline in the cost of feed raw materials, it is expected that the comprehensive cost of pig breeding will drop further. Currently, the latest comprehensive cost in August has dropped below 6.9 yuan/kg. The comprehensive cost of pig breeding is expected to be between 7.1-7.4 yuan/kg in 2024. The full cost of H1 chicken sold dropped to around 6.2 yuan/kg in half a year, a year-on-year decrease of 0.8 yuan/kg. The cost decline curve rapidly dropped from 6.5 yuan/kg in January 2024 to 5.9-6.0 yuan/kg in July 2024. The cost of the pig+chicken business continues to fall, helping to further broaden profit margins.

The balance ratio has declined steadily, and the financial situation continues to improve

The net operating cash flow of 2024H1 Wen's Co., Ltd. was 5.809 billion yuan, which achieved a sharp recovery, with a year-on-year increase of 107.38%. The significant improvement in operating cash flow helped reduce the pressure on the company's debt, and the balance ratio declined steadily. At the end of July 2024, the company's balance ratio was between 57% and 58%. Compared with the end of June, it continued to improve, down 1-2 pcts from month to month. The company's cash flow is expected to improve month by month, and the balance ratio is expected to fall below 55% by the end of 2024.

Profit forecasting

The company's revenue for 2024-2026 is 19.078, 124.102, and 131.833 billion yuan, respectively, EPS is 1.42, 1.87, and 1.72 yuan, respectively. The current stock price corresponds to PE of 11.0, 8.4, and 9.1 times, respectively, so it is rated as a “buy” investment.

Risk warning

Risk of disease in the pig breeding industry; risk of natural disasters and extreme weather; risk of industrial policy changes; risk of pig price increases falling short of expectations; risk of rising yellow feather chicken prices falling short of expectations; risk of fluctuations in feed and raw materials markets; risk of macroeconomic fluctuations.