With a 125 million impairment, superimposed by a depressed chicken price, 3Q20 turned from profit to loss. It is expected that the supply of white chicken industry may continue to grow, and chicken prices may be in a downward cycle in the next 1-2 years. Downgrade the company's profit forecast for 2020max for 21 years and maintain its "overweight" rating.
Impairment charge + chicken prices are depressed, and 3Q20 changes from profit to loss. The company publishes three quarterly reports for 2020. During the reporting period, the operating income was 1.29 billion yuan (down 45% from the same period last year) and the profit was 79 million yuan (down 94% from the same period last year). Of this total, 3Q20 achieved an income of 390 million yuan (down 49% from the same period last year) and a loss of 154 million yuan (down 140% from the same period last year and 41% from the previous year). The decline in income and profit is mainly due to the low chicken price caused by the increase in the supply of white chicken industry and the impairment loss of 125 million yuan of assets. 3Q20 sold a total of 8377 million chickens (up 15% from the same period last year), with an average price of 2.05 yuan per feather (down 70% from the same period last year and 31% from the previous month) and a loss of about 0.4 yuan per feather. The performance was lower than expected.
The supply continues to grow and the chicken price cycle goes down. Since 2Q18, the number of white-feathered chickens in China has continued to rise.
According to the statistics of the White Feather Chicken Industry Association, about 4.65 billion chickens were sold in 2019 (up 13% from the same period last year) and 3.9 billion in the first three quarters of 2020 (up 10.5% from the same period last year). Considering that the replacement number of parent generation chickens may be more than 1 million sets from 2019 to 2020, and the sales volume of parents' generation continues to grow at a high level, we expect that the number of white feather chickens in China may continue to grow in the next 1-2 years. At the same time, considering that the rebound in the pig farming industry will lead to the growth of pork supply in the next two years, or impact on chicken consumption, we expect chicken prices to be in a downward cycle in the next 1-2 years.
Risk factors: chicken prices rose less than expected, breeding epidemic, food safety incidents.
Investment advice: chicken prices enter the downward cycle, the company profit or pressure downside. Reduce the company's 2020 EPS forecast for 21 years to 0.35 pound 0.04 yuan (originally 2.44 pound 1.62 yuan), and maintain the 2022 EPS forecast of-0.44 yuan. Maintain the "overweight" rating.