The pig breeding business contributed considerable profits, and the company's net profit to the mother maintained a high increase, maintaining a “buy” rating

2024Q1-3's revenue/net profit to mother was 84.861/3.624 billion yuan, -2.38%/+60.95% YoY, of which 2024Q3 revenue/net profit was 32.565/1.499 billion yuan, -4.75%/+30.17% YoY. As the price of bulk agricultural products fell, the unit price of feed products followed the decline, and the company's revenue declined slightly year-on-year. Benefiting from the reversal of the pig cycle driving the rise in pig prices, the company's net profit to the mother maintained a high increase. Considering that the company's pig hedging profit is higher than expected, and the equity incentive fee may be recovered in 2024Q4, we raised our profit forecast. We expect net profit to be 4.426/5.105/5.212 billion yuan (previous value 4.065/4.885/5.03 billion yuan) for 2024-2026, corresponding EPS is 2.66/3.07/3.13 yuan, and the corresponding PE is 16.0/13.9/13.6 times, maintaining the “buy” rating.

2024Q3 Accruing equity incentives suppresses profits, and capital expenditure plans are reasonable

(1) Expenses increased during the period due to the calculation of large equity incentive expenses. The 2024Q1-3 company's fee rate for the period was 6.27%, +0.89pct year on year. Among them, the 2024Q3 period cost ratio was +1.35pct year on year. The main reason was that the company accrued equity incentive expenses of about 0.13 billion yuan, and the period expenses were +22.86% to 1.958 billion yuan compared to the same period. (2) Capital expenditure is properly invested according to the plan. The company expects that the 2025 capital expenditure plan will not change much compared to 2024. Overseas markets will be the key investment direction for capital expenditure, and the domestic market is biased towards upgrading and transforming existing production capacity equipment.

Sales of poultry and aquatic products bucked the trend, and overseas feed business may become a new growth point

(1) Sales of poultry and aquatic products bucked the trend. 2024Q3's total feed sales volume is 7-7.1 million tons, of which poultry sales volume is about 3.4 million tons, aquatic feed sales volume is about 2.1 million tons, and pig feed sales volume is about 1.4 million tons. Against the backdrop of sluggish overall sales in the feed industry, the company's poultry and aquatic feed sales bucked the trend year on year. (2) Overseas feed business may become a new growth point. 2024Q3's overseas feed sales increased 36-37% year on year, exceeding the company's expectations. The total overseas feed sales volume is expected to reach 2.3 million tons in 2024, contributing more than 0.7 billion yuan in profit. At present, the company has deployed core production capacity in Southeast Asia, South America, and Africa, which are rich in farming resources, and continues to expand markets in neighboring countries. In the long run, the overseas feed business is expected to become a new engine for the company's performance growth.

Reduced costs are compounded by a recovery in pig prices, and the pig breeding business has contributed considerable profits

2024Q3 The price of feed raw materials such as corn and soybean meal declined, and the decline in feed costs drove the company's pig breeding costs to 7.2-7.3 yuan/kg, contributing about 0.6 billion yuan in gross profit in a single quarter. The number of pigs produced by the 2024Q3 company is close to 1.3 million. Considering Q4 as the traditional peak season, the company is expected to release 5.5-5.6 million pigs throughout the year.

Risk warning: lower pig prices, price fluctuations of feed ingredients, risk of animal diseases.