Farming costs remain low, and the advantage of excess earnings per head continues to be maintained. The company's 2024Q1 revenue was 1,996 million yuan, +0.52% year-on-year, and net profit loss to mother was 157 million yuan. At the consolidated statement level, the company lost 165 million yuan in net profit for 2024Q1. Among them, 1) The overall loss of pig farming is expected to be close to 11-1 to 130 million yuan, including depreciation of 50 million yuan; 50,000 piglets, which are expected to remain flat; and 17,000 sows are eliminated, with an estimated loss of about 13 million yuan. 2) The profit of the slaughter business is estimated to be approximately RMB 19 million, including an impairment of RMB 5 million. 3) The poultry slaughter and breeding business is expected to lose about $22 million, mainly due to a sharp increase of 107% over the same period last year in poultry sales, while the drop in sales prices exceeds the cost reduction. 4) Functional expenses are 0.3 million yuan, of which equity incentive costs are about 0.1 billion yuan. From the perspective of cost calculation, the average sales price of the company's 2024Q1 commercial pigs was about 14.2 yuan/kg. If sows were not eliminated, the average loss of commercial pigs was about 260 yuan. The total cost of corresponding commercial pigs was about 16.35 yuan/kg, and the cost continued to be low.
There are plenty of breeding capacity reserves, and the number of pigs released is growing steadily. In total, the 2024Q1 company listed 657,000 heads, an increase of 23% over the previous year, leading its peers in growth rate. The company's production capacity has increased steadily. By the end of 2024Q1, the company's productive biological assets were 288 million yuan, an increase of 5% over the end of 2023. Currently, 150,000 sows can be bred, and 50,000 sows are in reserve. Considering that the company will upgrade efficient pig breeding starting in the second half of 2022, it is expected that monthly sow storage will increase markedly from the second half of this year. The company's listing targets for 2024-2025 are: 4 to 5 million heads and 6 million heads in that order. In addition, the company's financial strength is strong. By the end of 2024Q1, the amount of monetary capital reached 752 million yuan, an increase of 20% over the end of 2023. Furthermore, the company has diversified funding sources, and the overall goal is to reduce the debt ratio to less than 70% this year. Currently, the average market value of the company's breeding assets corresponding to the release of pigs in 2025 is only 2,000 yuan, and there is enough room for future valuation repair.
Huatong has three core advantages, which are expected to generate excess earnings per unit plus the release of fast-growing cyclical growth stocks.
Specifically: 1) Regional advantages lead to excess revenue per unit. Breeding assets in Zhejiang are scarce. First, Zhejiang is a pig sales area, and the average price of commercial pigs is usually close to 2 yuan/kg higher than the country during the boom period; second, Zhejiang has almost no farmers raising households. It is a naturally farming-free zone, which has a natural advantage in preventing and controlling diseases such as plague and other diseases. 2) The latecomer advantage brings excessive profits from farming. Huatong is a dark breeding horse that emerged after the plague. The reverse expansion at the bottom of the cycle enabled the company to benefit from the talent accumulation and technological dividends brought about by the sharp expansion of the industry. 3) Financial advantages establish the growth of the list. The company has diversified funding sources such as convertible bonds, fixed increases for major shareholders, and government subsidies; slaughter cash flow is also stable, which is expected to provide financial guarantees for expansion.
Risk warning: Risk of fluctuations in pig and raw material prices, risk of large-scale outbreaks of uncontrolled animal diseases.
Investment advice: Maintain a “buy.” The company's costs and production capacity are being realized month by month. There is enough room for growth and valuation repair, and Zhejiang's pig production capacity is scarce. It is a core asset in agricultural farming. It continues to be recommended and maintained as a “purchase”. We maintain our profit forecast. The net profit due to mother for 2024-2026 is estimated to be RMB 1.02/21.11/2.261 billion, respectively, and the corresponding PE is 15/7/7 X, respectively.