Company profile

The company is a leading regional pig breeding enterprise controlled by the Hunan Provincial State-owned Assets Administration Commission. Based on the pig breeding business, the company has established an integrated agricultural and animal husbandry enterprise integrating feed production, pig breeding, pig slaughter, meat processing, and cold chain logistics. After the company acquired Tianxin Breeding in 2022, sales volume began to expand rapidly. In the first three quarters of 2024, it achieved 3.11 million pigs, an increase of 49.4% over the previous year, achieving operating income of 5.27 billion yuan, +36.1% year over year. The company achieved net profit of 0.001 billion yuan to mother in 2024Q1-Q3, turning a loss into a profit.

The asset-light model expanded rapidly, and the number of releases achieved rapid growth:

After merging Tianxin Breeding in December 2022, the company vigorously developed the pig breeding business. As of 2024H1, the company had a storage capacity of 0.2328 million sows, a breeding capacity of close to 0.3 million sows, and a production capacity of over 1.5 million heads in fattening. The company mainly uses self-breeding and “company+farmer” models for asset-light expansion. 2024H1 delivered 1 new sow farm and 1 fattening farm each. Currently, the company's production capacity reserves are sufficient. We expect the company to release 4.3/5.5/6.5 million pigs in 2024-2026, respectively, +34%/28%/18% compared to the same period.

Multiple measures have been taken to optimize production efficiency, and breeding costs can be expected to improve:

The company focuses on cost reduction and efficiency, and actively achieves the cost reduction goal through multiple measures: the pig breeder gradually introduced Tianxin's high-performance breeding pigs to replace the original breeding pigs. Currently, PSY (number of weaned pigs produced per year) has reached a high level of 25 in some pig farms that use Tianxin to breed sows. In terms of hardware, while paying close attention to the quality of pig farm delivery, it promptly cleans out outdated and old production capacity to ensure a high standard of farm infrastructure. The management side has comprehensively upgraded and perfected the epidemic prevention system through location selection, construction of a complete epidemic prevention system, and raising employees' awareness of epidemic prevention. Thanks to the company's all-round efforts, as of November, the cost of raising piglets was reduced by more than 20% compared to the beginning of the year, and the weight gain cost for fat pigs was reduced by more than 10% compared to the beginning of the year.

Profit forecasting, valuation, and ratings

We expect the company to achieve revenue of 7.775/9.028/10.736 billion yuan respectively in 24-26, with year-on-year increases of 38.1%, 16.1%, and 18.9%, respectively, to achieve net profit to mother of 0.075/0.245/0.752 billion yuan, and reverse the year-on-year losses/+227%/+207%, respectively. The corresponding EPS is 0.06 yuan, 0.19 yuan, and 0.60 yuan respectively. Referring to the company's historical valuation and the valuation of similar comparable companies, the company's performance and valuation were greatly affected by cyclical fluctuations in pig prices, but the company's scale was rapidly expanding, and breeding costs continued to improve. Therefore, it was given a 26-year 12XPE, corresponding to a target price of 7.15 yuan. It was covered for the first time, and a “gain” rating was given.

Risk Alerts

Risk of fluctuations in pig prices, risk of fluctuations in feed prices, risk of animal diseases.