On October 29, Tianzhao Pig, a pig breeding giant from Sichuan, officially launched a stock offering.
According to the plan, Tianzhao Pig will sell 386.26 million shares globally this time, including 3.8626 million shares sold in Hong Kong, 34.7634 million shares placed internationally, and 15% over-allotment rights. The prospectus price range is HK$26.00 to HK$3880, with a maximum capital raised of HK$1.5 billion, with Fuqiang Financial Capital as the sole sponsor. In terms of progress, Tianzhao Pig is expected to close its offering on November 6 and be listed in Hong Kong on November 16. The stock code is 01248.HK.
As of press release, Tianzhao Pig's IPO shares have been oversubscribed in a relatively short period of time, reaching 1.62 times. I am also particularly concerned that Tianzhao Pig Industry has brought in a number of cornerstone investors, including Guoli Minsheng Equity Investment Co., Ltd., Fuhui Capital Investment Co., Ltd., and individual investor Mr. Zhong Zhaomin. The total investment amount of the three reached about HK$150 million.
Judging from the background of the cornerstone investors of Tianzhao Pig Industry, it can be said that they are strong, and all of them are expert investors.Guoli Minsheng is the controlling shareholder of the A-share listed company Yasui Foods (603345.SH). Since its listing in 2017, Yasui Foods has been greatly recognized by the capital market, and its stock price has soared nearly 15 times. FXCM Capital is directly owned by Hong Kong-listed company China Liansu (2128.HK). China Liansu is a leading large-scale building materials and home furnishing industry group in China, and a bull stock that has gone “ten times the market” after listing; Mr. Zhong Zhaomin, who invests in his personal name, is the chairman of Oriental Marathon Investment Management Co., Ltd. Zhong Zhaomin once publicly stated that “to invest is to invest in people, not to invest in a company without a soul”. The Oriental Marathon under his leadership has had great investment results, with the average annual yield of its funds reaching more than 50%.
On the other hand, looking at the Tianzhao pig industry, why is attracting large investors as the cornerstone?
The fundamentals are steady and improving, and considerable value has been released
In addition to looking at concepts, investment logic naturally requires a return to fundamentals.
First of all, the Tianzhao pig industry is a veritable pig breeding giant, and the introduction of additive, French pig breeding, and breeding technology systems have formed its core competitiveness. According to the Insight Consulting Report, in terms of market share and pig breeding sales revenue in 2019, Tianzhao Pig Industry ranked first among domestic pig breeding companies.
Breeders are located upstream of the entire pig breeding industry chain. To a certain extent, the quantity and quality of breeding pigs determines whether an enterprise can breed sows and keep piglets, and ultimately determines the actual economic benefits of the enterprise. Looking at specific indicators, the overall financial performance of Tianzhao Pig Industry is steady, and gross sales margin and return on net assets are even more impressive.
In 2017-2019 and the first four months of 2020, Tianzhao Pig's revenue was 475 million yuan, 499 million yuan, 784 million yuan and 352 million yuan respectively, and net profit was 159 million yuan, 40 million yuan, 485 million yuan and 234 million yuan respectively. Roughly speaking, there is still room for double-digit growth in 2020 revenue year over year, and there is a possibility that net profit will double.
In the same reporting period, Tianzhao Pig's gross sales margins reached 36.4%, 22.7%, 49.0%, and 65.9% respectively (before fair value adjustment). The data was much more impressive than that of major pig farmers Makihara Co., Ltd. and Wen's Co., Ltd.; in terms of return on net assets, in 2017-2019, it was 47.0%, 9.2%, and 74.7% respectively, always ranking in the top three in the industry. In particular, in 2019, Tianzhao Pig Industry's indicators were far ahead of the second and third players.
(Source: Wind)
However, judging from Tianzhao Pig's prospecting price, the discount is large, or there is no complete positive correlation with its corporate value.
Based on a rough calculation of the middle price of issuance, Tianzhao Pig's issuance market value is about HK$5 billion. According to the company's net profit level of 234 million yuan in the first four months of 2020, its predicted price-earnings ratio is about 7 times, which is significantly lower than that of peers listed on A-shares such as Muyuan Co., Ltd. and New Hope. To a certain extent, it is reflected that the valuation of Tianzhao Pig Industry is reasonable and low, and there is room for valuation to rise after listing.
Moreover, the business model of Tianzhao Pig Industry is quite resistant to cyclicality. Generally speaking, the pig cycle means that pork prices show a regular rise and fall, following the repeated development path of “rising pork prices - increasing supply of sows - increasing supply of commercial pigs - falling pork prices - decreasing supply of commercial pigs - falling supply of commercial pigs - rising pork prices”. There is no need to say much about the “general rise” in the upward cycle; in the downward cycle, as the prices of commercial pigs and pork fall, the market will place higher demands on improving the production efficiency of sows and reducing fattening costs for piglets, and demand for high-quality breeding pigs will be even stronger.
Tianzhao Pig Industry has high-quality pig breeders as its core business. In 2017-2019 and the first four months of 2020, revenue from selling breeding pigs to external customers was 198 million yuan, 77 million yuan, 224 million yuan and 91 million yuan respectively, accounting for 41.8%, 17.1%, 28.6% and 25.8% of the total revenue for the period, respectively. At the same time, when combined with Tianzhao Pig Industry's extremely advantageous epidemic prevention and cost control capabilities, comprehensive expectations, its operating efficiency for the next 3-5 years is guaranteed, and revenue and profit levels are stable to a certain extent.
The gap between supply and demand in the market opens, and future prospects tend to be determined
From the perspective of business structure, Tianzhao Pig has basically completed the layout of the entire industry chain from raising its own pigs to selling fresh meat. Perhaps it is more appropriate for us to define it using domestic demand-driven consumer stocks. Based on this, the certainty of the future development of the Tianzhao pig industry is further highlighted.
Since this year, domestic and international industrial patterns have been affected by various factors such as the epidemic, and a new trend of retrograde globalization and internal economic circulation has emerged.
As far as the domestic market is concerned, the business environment has been continuously optimized, the size of the consumer market has been greatly expanded, and demand for meat is increasing day by day. According to data from the US Department of Agriculture,The amount of pork consumed by Chinese consumers is expected to reach 40.3 million tons in 2020, which means that this year China's pork consumption will be more than double that of all countries in the EU combined; relatedAccording to market data, China's largest pig producers are speeding up replenishment and are expected to still produce 36 million tons of pork in 2020.
At the same time, there are frequent safety issues with imported frozen products, which will probably curb the growth rate of imported supply to a certain extent.According to incomplete statistics, in the second half of the year alone, there were 16 cases where imported frozen products tested positive for coronavirus nucleic acid. Recently, the Qingdao traceability survey proved for the first time that the coronavirus can be transmitted from person to person, and that it can survive for a long time under freezing conditions.
Therefore, it is anticipated that the domestic pork market in the short to medium term will obviously require more than supply. In the seller's market, the domestic supply side will benefit, and pig companies with the ability to expand production will benefit first. However, when it comes to the potential for capacity expansion, it will eventually go back to the upper reaches of the industrial chain, testing the strength of pig breeding. As a pig breeder giant, Tianzhao Pig is bound to follow the trend in such excellent opportunities.
epilogue
Currently, the internal and external development environment of the Tianzhao pig industry is driving it positively. The company's own excellent fundamentals compounded the gap between supply and demand in the market, bringing sufficient momentum and broad room for imagination to the continued growth of its future performance.
In the end, the long-term investment logic of new stocks still depends on growth prospects. As a result, there is relatively clear logical support behind Tianzhao Pig's future stock price performance, and its subsequent market potential is worth looking forward to.