Incidents:

The company achieved revenue of 13.087 billion yuan in the first three quarters of 24, -11% year-on-year; net profit to mother was 0.566 billion yuan, +212% year-on-year.

Among them, Q3 achieved revenue of 5.094 billion yuan, -11% YoY and +21% month-on-month; realized net profit of 0.289 billion yuan to mother, +606% YoY and +30% month-on-month.

Our analysis and judgment:

1. Q3 costs entered the leading echelon of the industry, and the pig business achieved high quality development 1) 2024Q3: [volume] released about 0.743 million heads, -1% YoY, -2% month-on-month; [Price] weighted average price estimate is about 18.2 yuan/kg, +18% month-on-month; [Profit] The estimated cost was reduced to about 14.3 yuan/kg (24Q2 cost 15.15 yuan/kg), corresponding to an average operating profit of about 0.3 billion yuan to 420 yuan (24Q2) (The average initial profit is about 50 to 100 yuan).

2) 2024Q1-Q3: [Volume] listed about 2.144 million heads, +4% year over year; [Price] weighted average price estimate is about 15.6 yuan/kg, +9% year over year; [Profit] The estimated cost is 15.2 yuan/kg, corresponding to the operating profit of the company's pig business segment about 1.5 to 0.16 billion yuan, corresponding to an average head profit of 70 to 80 yuan.

2. Improved production performance achieved cost reduction and efficiency. At the same time, the steady increase in production volume was achieved thanks to the company's population optimization and production management improvement. Various production results have improved markedly. Among them, the company's PSY index has increased significantly since the beginning of the year, and is expected to reach the target level of 28 this year. Based on continuous improvement of production indicators, the cost improvement is quite obvious. As of September, the company's full cost had been reduced to 13.91 yuan/kg, down about 0.84 yuan/kg compared to July, and 1.24 yuan/kg compared to 24Q2.

Looking back, based on the company's current aquaculture production efficiency, epidemic prevention and control effects, etc., the company expects that there will still be some room for decline in farming costs in the fourth quarter. In addition, improved production indicators are also expected to help the company continue to grow in listing volume, laying the foundation for achieving the high quality target of 3.5-4 million sales next year.

3. The non-pig business is developing steadily, and animal protection and feed are the pillars

The performance support of the non-pig business is still strong. Among them, the animal insurance business and feed business are still important sources of profit for the non-pig business. In terms of animal insurance business, with the transformation of the animal vaccine project built in Suzhou in the third quarter and the successful GMP inspection, the future will focus on production and R&D work on bacterial and cytogenetic engineering vaccines, bringing the company stronger market competitiveness. In terms of feed, 24Q3 achieved sales of about 0.69 million tons, of which export sales were about 0.45 million tons and domestic sales were about 0.24 million tons. However, due to declining feed raw material prices, prices were adjusted, so we expect feed revenue to decline compared to the same period last year.

4. Investment suggestions:

Maintain a “buy” rating. Based on: 1) The company is expected to achieve both quantitative and qualitative increases: the cost has improved significantly and has entered the leading echelon in the industry; it is expected that the sales volume will be 3-3.1 millions/3.5-4 million heads in 24/25, with a compound annual growth rate of about 11% to 19% over 23-25 years; 2) The company's latest market value corresponds to the average market value of 1,500-2000 yuan/head in 2024, which is at the bottom of the average market value history; 3) Under the prudent filling of the industry, the profit cycle is expected to be extended based on cost advantages. Profit margins are expected to continue to increase, and profits are expected to continue next year. Considering the impact of factors such as social consumption changes, supplementary sentiment, and secondary education in the current cycle, the profit period of the cycle may be lengthened, the cycle height or narrowing. We adjusted the net profit to mother for 24-26 to 0.952/1.041/0.908 billion yuan (the value was 1.349/1.904 billion yuan 24-25 years ago), and the corresponding EPS was 0.7/0.76/0.67 yuan/share.

Risk warning: risk of the epidemic; pig prices falling short of expectations; risk of policy changes; sales volume falling short of expectations.