The number one biosafety brand in China's laying hen industry. Established in 2011, Xiaoming Co., Ltd. is an integrated laying hen breeding enterprise that “attracts, multiplies and pushes”. It has created an original “centralized breeding and decentralized incubation” business model, built a biosafety management system, and integrated the construction of a “full network of raised beds” welfare breeding model system for laying hens. The company's core business is to replace eggs and chicks. Sales cover more than 30 provinces, and the market share can reach 10% in 2019.
Interpret the characteristics of China's laying hen industry. 1) The egg market capacity is growing steadily, and the level of deep processing of egg products is lagging behind:
Since 2013, China's egg market capacity has stabilized at over 90 billion yuan, with sales of about 134 billion yuan in 2019. It is expected that future market capacity will grow further. Currently, egg product processing in China accounts for only 5% of egg consumption, and the market size is expected to gradually expand in the future. 2) There are various models of laying hens, and the industry pattern is still quite scattered:
Currently, China's laying hen breeding model coexists with independent breeding and contract farming. The commercial laying hen replacement industry pattern is characterized by “small scale and large groups”. In the future, the laying hen industry will develop in the direction of scale and standardization.
3) It shows cyclical and regional characteristics: Changes in the farming intentions of downstream farms, fluctuations in egg prices, and delays in capacity adjustment cause the industry as a whole to fluctuate cyclically. The fluctuation cycle is roughly 2-3 years. China's laying hen farming industry is concentrated in the northern region, but regional characteristics are gradually weakening. 4) Good breeds of domestic and foreign laying hens may coexist for a long time: in 2019, domestic egg-breeding hens accounted for more than 80% of stocks, but compared to that, the production capacity utilization rate of imported varieties from abroad is higher, and large-scale farms downstream of the industry prefer to choose imported varieties from abroad with better energy efficiency.
Deeply explore the core competitiveness of Xiaoming Co., Ltd. 1) Create a new business model and vertically integrate the industrial chain: the company has pioneered a “centralized breeding and decentralized incubation” business model. The business covers most aspects of the laying hen industry, ensuring product quality and improving operation and management efficiency. 2) Adhere to the industry's biosafety first brand concept: The company attaches great importance to biosafety and has established a biosafety management system composed of four major sectors to reduce losses caused by poultry epidemics. 3) Innovate welfare farming models: In line with the development trend of the global laying hen farming industry, the company invented the “full screen raised on high beds” welfare breeding model for laying hens to improve the overall health of the chicken population. 4) Continued investment in scientific research and innovation: The company focuses on technological innovation and promotes the industrial application of new technologies.
Fundraising projects: expand the production capacity of laying hens and enhance the core competitiveness of enterprises. The company plans to launch an IPO of 47 million shares. It plans to raise capital to build new laying hen breeding projects and laying hen industry research institute projects in Alashan and Minning to expand the production capacity of laying hens, enhance core competitiveness, and increase annual egg production by 500 million pieces.
Profit forecasts and investment recommendations. We expect the company's net profit to be 103/146 million yuan from 2021 to 2022, and earnings per share of 0.55/0.78 yuan respectively. Considering that the company is a new stock, a certain valuation premium was given. We gave the company a valuation of 2.7 to 3.0 times PB in 2021. The corresponding reasonable value range was 13.42 to 14.91 yuan, covering the “superior market” rating for the first time.
Risk warning. The poultry farming epidemic, the prices of eggs and breeding chicks fell sharply, and the progress and yield of fund-raising projects fell short of expectations.