The company's recent situation

Recently, we organized research on COFCO Jiajiakang's aquaculture industry chain in East China. The company exchanged views on the progress of cost reduction and efficiency, future sales growth, and fresh food business development. We believe that the company's cost performance has improved, capacity construction supports growth, fresh food brand operations are improving, and the company's operations and production continue to be optimized.

reviews

Technology has enabled refinement of aquaculture, and cost reduction is beginning to show results. On the one hand, the company's management adjustments have shown results, and the cost level may have been reduced month by month. According to our estimates, the company's full cost of 1H24 is about 16.2-16.5 yuan/kg; we judge that recently, the company may have benefited from management improvements and declining raw material costs, and the complete cost is showing a further downward trend. On the other hand, the company attaches importance to improving the level of intelligence, breeding and epidemic prevention, and improving the level of refined management capabilities or favoring long-term cost decline. According to the company's announcement on August 28, the company is actively promoting the exploration of intelligent farming and piloting the installation of intelligent equipment in newly launched projects; the genomic breeding platform operates smoothly, which is conducive to improving population performance; improving the standardization system for epidemic prevention; and strengthening benchmarking among farms.

The balance sheet steadily supports the construction of production capacity, and sales volume may return to growth in 2025. In terms of capital, the company's capital structure is relatively healthy, and it has a basis for expanding production capacity and seizing market share. According to the company's announcement on August 28, the company's balance ratio at the end of 1H24 was 44.3%. We estimate that the company's balance ratio level is lower than the industry average, and it has financial stability and room for capital use. In terms of the progress of production capacity construction, the company's sow stock has increased steadily, and the construction of new production capacity is progressing in an orderly manner. Compared to the end of 2023, 1H24 last breeding pigs and reserve breeding pigs were +42.2% to 0.337 million head, supporting the growth strength; the property, plant and equipment/usage rights assets of the end of 1H24 were 9.89/0.7 billion yuan, compared to +2%/+10% at the end of 2023. We judge that the increase was due to the company starting to build pig breeding capacity. In summary, we think the company is expected to return to the growth trajectory of listing volume in 2025.

The fresh food business strengthens brand building and is expected to increase the stability of performance in the long term. First, the company's brand business development this year showed a positive trend. According to the company's announcement on September 9, the share of brand revenue in the fresh pork business in August was 29.9%, +5.44pp/month-on-month, and has risen to a historically high level month by month since May. Second, the company invigorates product research and development, channel development, brand image, and 3D helps optimize fresh food business operations. According to the company's announcement on August 28, the company's flaxseed pork products passed the certification of non-resistant products in August, and are now gradually being promoted, which is conducive to strengthening the differentiated competitive advantage of products; the company has developed high-quality channels with demonstration effects and placed products in offline supermarkets such as Hema, boutique supermarkets such as Ole, and e-commerce channels such as Jingdong; the company focuses on sports marketing and brand activities such as community dumpling contests to help expand the brand influence.

Profit forecasting and valuation

Maintain profit forecasts, corresponding to 13.5/6.1 times P/E for 24/25. Maintaining an outperforming industry rating and target price of HK$1.80, corresponding to 17.6/8.0 times P/E in 24/25, with 30.4% upside.

risks

Pig prices and release volumes fell short of expectations; risk of the epidemic; raw material prices rose more than expected.