Higher pig prices & improved breeding costs drove the company's 24Q3 profit release to an accelerated month-on-month period. Against the backdrop of weak recovery in sow production capacity, pig prices may be better than market expectations in the future, supporting the full release of the company's profits. Maintain a “Highly Recommended” rating.

There was a steady increase in sales, and 24Q3 profits were released at an accelerated pace. The company disclosed its 2024 three-quarter report. During the reporting period, the company achieved operating income of 75.4 billion yuan (yoy +17%) and net profit to mother of 6.41 billion yuan (year-on-year loss).

Looking at the third quarter of a single quarter, the company achieved revenue of 28.7 billion yuan (yoy +22%) and net profit to mother of 5.08 billion yuan (+3097% year-on-year). In addition, the company plans to distribute cash of 1.5 yuan (tax included) for every 10 shares to all shareholders, for a total of 0.995 billion yuan in cash. In the first three quarters of 24, the company sold 21.56 million pigs (yoy +18%) and broilers sold 0.871 billion feathers (yoy +1.0%). In 24Q3, the company listed 7.19 million pigs (yoy +9.9%), with an estimated comprehensive cost of 14.0-14.5 yuan/kg, with an average head profit of 600-650 yuan; selling broilers 0.323 billion (yoy +4.7%), with an estimated comprehensive cost of 11.8-12.3 yuan/kg, and an average profit of 2.0-2.5 yuan. Benefiting from rising pig prices and improved breeding costs, the company's profits were released at an accelerated pace in the third quarter.

Cash flow is improving at an accelerated pace, and sow production capacity is growing steadily. In terms of cash flow, due to rising pig prices and improvements in breeding costs, the company's cash flow improved at an accelerated pace. 24Q3 achieved a net operating cash flow inflow of 6.98 billion yuan, driving the company's balance ratio down 4.1 percentage points to 55% month-on-month, and achieving the target for the year ahead of schedule.

In terms of production capacity, by the end of September, the company's ability to breed sows had steadily increased to 1.66 million, an increase of 6.4% over the previous year. Supported by improved production efficiency, the company's production volume may have maintained steady growth in 25 years.

Sow production capacity has recovered weakly, and pig prices may have been better than expected in '25. Since mid-August, overall pig prices have weakened, which may indicate that the backlog in the early stages continues to be digested, or that it is difficult to significantly increase supply in the future. Entering 24Q4, pork consumption is gradually entering the peak season, and pig prices can still be expected in the future. However, the tight cash flow situation on the industrial side has not been completely reversed. At the same time, based on cautious expectations for pig prices in the future, it is expected that sow production capacity will maintain a weak recovery trend, or that pig price expectations will rise in 25 years. High-quality pig companies with strong cost control capabilities may still be able to achieve certain profits.

Maintain a “Highly Recommended” investment rating. Due to the double impact of rising pig prices and improvements in breeding costs, the company's 24Q3 performance achieved an accelerated month-on-month release, and the balance ratio dropped to 55%. Against the backdrop of weak recovery in sow production capacity, pig prices may be better than market expectations in the future, supporting the full release of the company's profits. We expect the company's profit forecasts for 2024-2026 to be 11.1 billion yuan, 11.6 billion yuan, and 11.3 billion yuan respectively. The corresponding PE is 12X, 11X, and 11X, respectively, maintaining a “highly recommended” investment rating.

Risk warning: Pig price performance/company size expansion fell short of expectations; cost improvement fell short of expectations; outbreak of large-scale uncontrollable outbreaks.