Incident: The company released its 2024 three-quarter report. The company's revenue for the first three quarters of 24 was 17.071 billion yuan, a year-on-year decrease of 18.20%; net profit to mother was 0.254 billion yuan, an increase of 127.86% over the previous year. On a quarterly basis, in Q3, the company achieved operating income of 6.234 billion yuan, a year-on-year decrease of 15.64%; net profit to mother was 0.249 billion yuan, an increase of 200.91% year-on-year.

With increased investment in breeding New Danshi pigs, breeding costs are expected to drop further. The company is a pig enterprise in the whole industry chain with feed, pig farming, and meat products as its three main businesses. The company's pig breeding costs are expected to be further improved in the future, mainly reflected in: 1) in terms of optimizing the breeding system, the company continues to improve production indicators such as PSY and survival rate by increasing the supplement of high-breeding Sindan pigs; 2) diluting fixed costs by increasing capacity utilization to form a scale effect; 3) leveraging the advantages of large-scale procurement, optimizing feed formulations, and paying more attention to cost performance.

The production capacity layout supports the expansion of the market scale. The company accelerated the improvement of the listing structure, and the “company+farmer” fattening model increased rapidly, accounting for 72.89% of the listing scale. From January to September '24, the company sold 2.7914 million pigs, an increase of 6.10% over the previous year (including 2.4784 million commercial pigs and 0.313 million piglets). Productive biological assets at the end of 24Q3 were 0.454 billion yuan, down 17.11% from the end of 23Q3. With the company's layout in pork consumption regions, the sales volume is expected to expand further.

The feed business is growing steadily, and formula optimization reduces breeding costs. The company's feed sales declined slightly in the third quarter, with pig feed accounting for 40%, poultry accounting for 55%, and aquatic products and others accounting for about 5%.

The company's pig food sales customer structure is dominated by distribution customers. The company is expected to further increase the development of large-scale pig farms and increase the proportion of direct sales customers through the “product+service” model.

Investment advice: The full cost of the company is expected to improve further, and we will adjust the profit forecast. The company's net profit is expected to be 0.58 billion yuan, 0.87 billion yuan, and 1.29 billion yuan in 2024, 2025, and 2026, respectively, up 138.1%, 50.1%, and 49.6% year-on-year respectively. The current stock price is 14, 9, and 6 times PE, respectively, maintaining a “buy” rating.

Risk warning: Risk of fluctuations in livestock and poultry prices, risk of sudden outbreaks of epidemics.