We have been focusing on the operation of the entire pig industry chain for more than 30 years. The company was founded in 1988. Over the years, it has continued to operate around the three major industries of “biological feed, healthy breeding, and branded meat”, building product brands such as “camel brand” feed, “Meishen brand” breeding pigs, and “Tang Renshen” meat products, etc., and industrial collaboration has continued to increase. In 2023, the number of pigs released by the company reached 3.71 million, with a market share of 0.51%, and the medium- to long-term planning target is 10 million heads; the total domestic and foreign feed sales volume is 28.76 million tons, which is equivalent to 8.9% of the country's total output.

Pig prices have begun an upward cycle, and farming profits can be expected. Since 2023, the industry has lost money for 15 months, and corporate cash flow pressure is high. Combined with the impact of the non-plague epidemic in winter, passive and active sow degeneration has been sufficient; starting with 2024Q2, the decline in sow decontamination has begun, and pig prices have begun an upward cycle. On September 19, pig prices reached 19.60 yuan/kg, up 33.97% from the beginning of the year. Due to the decline in raw material prices and the effects of enterprise cost reduction and efficiency, the costs of breeding enterprises have declined rapidly since 2024Q2, and the “scissor gap” between pig prices and costs has widened, and corporate breeding profits are expected to show greater elasticity.

Actively lay out farmed feed, and take multiple measures to increase efficiency and reduce costs. In the breeding business, the first is to upgrade and iterate the pig breeding system by promoting intelligent digital applications and introducing high-PSY Danshi breeding pigs to continuously improve production management efficiency and reduce breeding costs; the second is to flexibly combine the “self-breeding and self-raising” and “company+farmer” models, and give full play to the advantages of the building breeding model to accelerate the capacity layout in sales areas such as Hunan and Liangguang; and rationally arrange the pace of production capacity expansion. When pig prices are low, the scale of financing expansion ensures the stability of capital and strongly supports future growth in sales volume. The feed business has a stable competitive advantage, and profitability is expected to improve.

The company focuses on research on feed nutritional formulations, continuously develops high-quality new products, and enhances profitability; the “Iron Triangle” team with technology and service as the core provides comprehensive service plans to enhance customer stickiness in large-scale pig farms.

Investment advice: We expect the company to achieve operating income of 25.57/26.68/27.78 billion yuan in 2024-2026, net profit to mother of 0.754/0.852/0.881 billion yuan respectively, and the closing price on September 27 is 10.0/8.9/8.6 times PE for 2024-2026, respectively. Considering that the company's scale growth is flexible and production efficiency increases driving down costs, it is expected to fully benefit from rising pig cycle prices. We maintain the company's “gain” rating.

Risk warning: risk of raw material price fluctuations, animal disease risk, extreme disaster risk, product price fluctuation risk, food safety risk, risk of recent holdings reduction