Continued downstream losses led to year-on-year pressure on Q1's performance, maintaining a “buy” rating. In 2024, Q1 achieved revenue of 205 million yuan (yoy -26.68%, qoq -13.40%), and net profit of 87.2284 million yuan (yoy -35.64%, qoq +126.53%). We expect the company's 2024/25/26 net profit to be 4.52/5.65/ 683 million yuan, corresponding EPS of 0.97/1.21/1.46 yuan, respectively. Referring to the company's 2024 Wind, the average PE value is 20 times. Considering the company's obvious pig breeding moat and strong R&D strength, single products such as porcine infectious gastroenteritis, swine epidemic diarrhea, porcine delta coronavirus triple vaccine and round branch dual vaccine are expected to be launched in 2024 and contribute an additional increase to the company's profit in 2024. 29 times PE, target price 28.13 yuan, maintaining the “buy” rating.
Losses in downstream pig farming dragged down the company's revenue and profit from a year-on-year decline
The 24Q1 company's revenue and profit declined year-on-year or was mainly affected by both the sales volume and price of vaccine products, and the relatively high base. In 24Q1, the company's revenue fell 27% year on year, gross margin was about 67%, and the year-on-year decline was about 11pct. Gross margin was at a low level since the company went public. We analyzed that the company's vaccine product sales are under pressure, or demand for animal protection products such as pig vaccines has declined against the backdrop of continued losses in downstream pig farming and continued increase in cash flow pressure, and the breeding side is more willing to reduce the price of animal insurance products.
Accounts receivable continue to shrink, and the risk of bad debts may be more manageable
The accrual of bad debt losses on accounts receivable in 2023 has had a certain impact on the profits of most animal insurance companies. The company's notes and accounts receivable as of the end of 24Q1 were about $312 million. They have been shrinking month-on-month for 3 consecutive quarters and decreasing by about 100 million yuan year-on-year, or the main reason is that the company's reconciliation period policy was tightened at the bottom of the farming cycle due to bad debt risk control considerations. We believe that tightening the account policy can effectively help animal insurance companies control the risk of bad debts. At the same time, the farming side at the bottom of the farming cycle may prefer to choose animal insurance and other suppliers that are willing to sell on credit and have relatively long account periods due to financial pressure, leading to increased pressure on the company's product sales.
R&D strength is strong, and revenue and profit are expected to gradually recover
The company continues to promote the development of new products. In terms of vaccines for pigs, 3 new products, including the round branch double vaccine and the mycoplasma parporcine double vaccine, are about to obtain new veterinary drug certificates. Pseudorabies (HB-98 strain) and swine infectious gastroenteritis, porcine epidemic diarrhea, and porcine delta coronavirus triplets have entered the review and testing stage, and products such as swine fever and pseudoclonal double vaccines are also being developed; various products such as poultry vaccines, pet vaccines (cat triplets, etc.), and ruminant vaccines are also being developed. The launch of new products is expected to continue to contribute to the company's performance growth.
At the same time, we expect the pig cycle to reverse in 2024, and the pig breeding industry to enter a relatively continuous profit period, which is expected to drive a gradual recovery in demand for mobile protection products and drive the company's revenue and profit recovery.
Risk warning: The boom in the pig breeding industry fell short of expectations, market-based sales fell short of expectations, and competition in the animal vaccine market intensified.