Focusing on high-generation livestock and poultry breeding sources, the company has been a leader in the industry for more than 30 years: the company pioneered the introduction of white feather breeding chickens from the Zeng Zeng Dynasty, mainly raising ancestral and parent-generation white feather breeding chickens, and selling parent generation and commercial chicken seedlings. In recent years, the company has increased production capacity investment in the pig breeding business, and is expected to achieve two-wheel drive with the white feather chicken business.

Parent generation seedling prices remain high, and commercial generations are expected to resonate with pigs and chickens: the terminal gap caused by the blocking of the introduction of ancestral chickens in 2022 may be partially compensated by domestically produced and forced feather exchanges. Looking at the breed structure, domestic parent generation chicken seedlings accounted for 18% of sales from January to October 2024, which is lower than the 31% share of ancestral renewal. Currently, it will take time for domestic parent surrogate chicken seedlings to form a large supply. Currently, the supply of imported parent chicken seedlings is still tight; from the supply side, there are differences in seedling prices between different breeds and large and large manufacturers. The supply of good breeds of chicken seedlings is tight and the price is slightly higher. Seedling planning is good; on the demand side, the continuous expansion of downstream breeding and slaughter also has good support for chicken seedlings demand. The profits of various links in the white feather chicken industry chain are expected to diverge, and I am optimistic about the profits of the parent breeding chicken and commercial chicken seedlings.

High-quality chicken seedlings show competitiveness, and scale advantages create a moat: Yisheng is the first and only company in China to introduce and raise new Hubbard Lifeng products. It has clear competitive advantages in terms of egg production rate and meat ratio, and has strong disease resistance and high survival rate. Due to the excellent performance of the company's parent breeding chickens, they have a price advantage in the market, which is higher than most other breeds. At the same time, the price of chicken seedlings sold by Li Feng products is also significantly higher than the average sales price in the market. The company's sales volume of chicken seedlings is also constantly expanding, and it has the advantage of scale. The breeding scale of ancestral broiler breeding has ranked first in the country for nearly 20 years, accounting for about 1/3 of the domestic market; commercial broiler production has also continued to expand, making it the company that sells the largest number of white feather broiler seedlings in China, accounting for nearly 1/10 of the domestic market.

Investment in the pig breeding sector has been increased, and production capacity has been gradually released: with the company's pig breeding farm being put into use, the company's binary pig breeding business has been gradually released. The company's pig business has achieved single-quarter profits in the second quarter of this year. Sales of breeding pigs increased more than 7 times year-on-year in the first three quarters of this year. The company expects to sell more than 0.01 million breeding pigs in the fourth quarter, and is expected to sell 0.15 million heads in 2025. The sales volume of breeding pigs is expected to be 0.2 million heads in the future.

Investment advice: The company uses the supply of high-generation livestock and poultry breeding sources as its core competitiveness. It is the largest ancestral broiler breeding enterprise in China, and the sales volume of commercial chicken seedlings also ranks first. We expect the company to achieve operating income of 2.922/3.673/3.985 billion yuan and net profit of 0.546/0.664/0.718 billion yuan in 2024-2026. At the closing price on November 29, the corresponding PE was 20/16/15 times, respectively, maintaining the “gain” rating.

Risk warning: risk of chicken price fluctuation; risk of animal disease; risk of food safety risk; risk of price fluctuation of feed ingredients; risk of high pledge rate of majority shareholders