The company lost a lot in 2023Q1 performance, and individual pig breeding farms were optimized after being affected by the epidemic. The company's revenue in 2022 was 1,217 million yuan, +15.68% year on year, net profit of 43 million yuan, -79.72% year on year; 2023Q1 revenue was 325 million yuan, +42.36% year on year, and Guimu's net profit loss was 191 million yuan, -492.15% year on year. Among them, due to the continued decline in pig prices in the first quarter, the reserve amount calculated for inventory price reduction was about 45 million yuan. The company's rapid revenue growth rate in recent years is mainly due to the steady expansion of the number of pigs sold, but profits are still under pressure due to the overall slump in pig prices. In addition, individual 2023Q1 companies had disease problems such as blue ear and pseudo-rabies, so the company took the initiative to eliminate backward production capacity and update the pig breeding system. The total losses for the first quarter were about 115 million yuan (including preparation for inventory price reductions of about 20 million yuan). At the same time, the company built a lot of new buildings, and the fixed depreciation and amortization expenses that it needed to bear were large. The total loss corresponding to 2023Q1 was about 25 million yuan. Overall, the company's production and operation are normal, and the overall fundamentals are good. After experiencing this adjustment and optimization of the pig breeding system, it will help improve the company's future production efficiency, and it is expected that it will be lightweight.

Pioneer in pig breeding for Hong Kong, with a significant market price advantage. The company has a complete pig industry chain integrating feed production, breeding expansion, commercial pig breeding, live pig supply to Hong Kong, and pig sales in the Guangdong market. It is the largest supplier of live pigs supplied to Hong Kong in China. In 2022, the company exported 258,800 live pigs to Hong Kong and Macao throughout the year, of which 221,900 heads were exported by its own company, accounting for about 23% of the large pigs supplied to Hong Kong from the mainland, accounting for about 23% of the large pigs supplied to Hong Kong from the mainland, accounting for the company. The company's target supply volume to Hong Kong in 2023 is 300,000 heads. The average sales price of 2023Q1's commercial pigs is 16.77 yuan/kg, showing the market advantage of the domestic pig supply business to Hong Kong. On the one hand, the price of Hong Kong pigs is generally higher, and they are priced through auctions, so good quality pigs will sell at a higher price, which favors enterprises with high quality breeding and listing quality. On the other hand, there is still room for improvement in the leading market share of the Hong Kong live pig market. The company's future goal is to supply more than 500,000 heads to Hong Kong per year, and there is still room for growth to more than double.

There are sufficient reserves of breeding production capacity, and the release of pigs is expected to expand steadily. In terms of listing, according to the investor relations activity record table on February 23, 2023, the number of sows currently kept by the company is about 66,000 heads, and the company's listing target for 2023 is 800,000 to 1 million heads, which is expected to double the increase from 2022. In terms of land reserves, the company has now reserved 2 million heads of land for aquaculture projects in Heyuan City. The company's capital expenditure is expected to be about 1 billion yuan in 2023, mainly to build projects such as the “Dongyuan Dongrui Modern Agricultural Complex Project (Huangsha base)” and the “Huizhou Dongrui Multi-storey Pig Breeding Project”. After completion, the above two projects will add 500,000 heads of production capacity. It is expected to help the company expand steadily.

Risk warning: An uncontrollable outbreak occurred during farming, and the sharp rise in food prices increased feed costs.

Investment advice: Maintain a “buy” rating. Due to the large decline in pig prices in the first half of 2023, the company's profit forecast was lowered. The company's net profit to the mother for 23-25 is estimated to be 0.11/523/235 million yuan (originally estimated net profit to the mother in 23-24 was 392/319 million yuan), corresponding to the current stock price PE of 499/10/23X.