Events:
Zhengbang Science and Technology release report: in the first half of 2021, the company achieved operating income of 26.679 billion yuan, an increase of 61.2% over the same period last year; the net profit returned to its mother was-1.43 billion yuan, from profit to loss compared with the same period last year and 2.417 billion yuan in the same period last year. Among them, 21Q2 realized operating income of 13.974 billion yuan, + 48.41% compared with the same period last year; realized net profit of-1.642 billion yuan, from profit to loss over the same period last year, and made a profit of 1.515 billion yuan in the same period last year.
Main points of investment:
Feed business sales, income increased significantly. Benefiting from the continuous recovery of pig production across the country, the company's feed sales have increased significantly. In the first half of the year, feed sales totaled 2.3737 million tons, an increase of 20.79 percent over the same period last year, of which pig feed sales were 1.2966 million tons, up 19.93 percent, and poultry feed sales were 930100 tons, up 24.02 percent over the same period last year. In the first half of the year, the operating income of the feed business was 8.029 billion yuan, + 43.02% compared with the same period last year, accounting for 30.09% of the operating income; the gross profit margin was 10.29%, down 0.11pct from the same period last year, mainly due to a slight increase in the cost of feed raw materials compared
The number of live pigs increased significantly, and the profit margin of breeding decreased significantly. In the first half of the year, due to the decline in national pig prices and the high cost of sows and piglets, the pig farming business lost money. In the first half of the year, 6.9968 million pigs were fenced, which increased by 1.57 times compared with the same period last year, including 1.0481 million piglets and 5.9487 million commercial pigs. The operating income of pig farming was 17.738 billion yuan, + 65.59% compared with the same period last year, accounting for 66.45% of the operating income; the operating cost was 15.84 billion yuan, + 130.03% compared with the same period last year; and the gross profit margin was 10.70%, down 25.0 pct from the same period last year.
The quarter-on-quarter ratio of fixed assets and projects under construction continues to increase to ensure the growth of live pigs in the future. At the end of the second quarter, fixed assets were 15.053 billion yuan, + 50.38% year-on-year and + 1.05% respectively; projects under construction were 3.939 billion yuan,-9.38% year-on-year, + 56.19%; and 666 million yuan was transferred in the first half of the year. At the end of the period, the productive biological assets were 8.14 billion yuan, + 26.01% year-on-year and-11.66% compared with the same period last year, mainly because the company continued to phase out a small amount of inefficient sows in the second quarter.
The introduction plan is completed, the inefficient sows are eliminated, and the cost is expected to be further reduced. At the end of 2019, the company launched the introduction program of ten thousand foreign breeding pigs and established independent core groups. By the end of the first half of 2021, the company has completed the population reconstruction work of introducing a total of 11120 pigs, covering the best breed pig strains in the world, such as French, Danish, Canadian, American, and so on. After the completion of this introduction, it can meet the company's future plans and realize the self-circulation of breeding sows. Since May 2020, the company basically does not purchase piglets, and there are no purchased piglets among the fattening pigs listed in 2021Q2, and the existing self-reproducing piglets can be self-supplied. 2020Q4 began to phase out inefficient sows, with 2020Q4 and 2021Q1 phasing out a total of 800000 sows, with the remaining 50, 000 eliminated in the second quarter. By the end of June, the company was able to breed about 1.2 million sows and about 700000 reserve sows, excluding ternary sows. The cost of piglets in the company has decreased from 950 yuan per head of 2020Q4 to 600yuan per head of 2020Q2. As the elimination of sows has been completed, it is expected that the cost of piglets will be further reduced in the future.
Profit forecast and investment rating: for the first time, we expect the company's annual return net profit in 2021-22-23 to be-3.519 billion yuan,-1.513 billion yuan and 6.074 billion yuan respectively, corresponding to PE of-7.4times,-17.2 times and 4.3times, respectively. It is expected that the cost will continue to decline, and the company's profitability is expected to be improved and given an "overweight" rating.
Risk hint: African classical swine fever affects the volume of production; the long-term maintenance of pig prices below the cost line leads to a shortage of funds.