Incident: The company released its 2022 annual report and 1Q23 quarterly report. In 2022, Longda achieved revenue of 16.1 billion yuan, a year-on-year decrease of 17.4%, and achieved net profit of 75.38 million yuan, an increase of 111.5% over the previous year; 1Q23, Longda achieved revenue of 3.5 billion yuan, an increase of 4.0% over the previous year, and Guimu's net profit of 21.19 million yuan, a decrease of 9.6% over the previous year.
Affected by low pig prices, slaughter business revenue is under pressure. Dragon University's slaughter revenue in 2022 was 12 billion yuan, a year-on-year decrease of 12.6%. The slaughter business sold about 690,000 tons, an increase of 7.1% over the previous year. According to company data estimates, the average price of the company's fresh frozen meat sold in 2022 was 17.5 yuan/kg, a year-on-year decrease of 18.6%. Pig prices remained low throughout the year, causing overall revenue from the slaughter business to shrink.
The share of revenue from the food processing business continues to rise, and the growth performance of prepared dishes is superior to the overall growth performance. Longda's food processing business achieved revenue of 1.7 billion yuan in 2022, an increase of 7.1% over the previous year. The revenue share reached 10.2%, an increase of 2.3 pct over the previous year. Among them, sales revenue of prepared dishes was about 1.3 billion yuan, an increase of 11.2% over the previous year. The scale of prepared dishes is growing rapidly, and the revenue growth rate is superior to that of the food processing business and the company's overall performance.
Looking ahead to 2023, pig prices are expected to be low and then high. The low pig prices in the first half of the year will help the slaughter business release profit elasticity. The company expects pig prices to show a low and then high trend in 2023. Pig prices will run low in the first half of the year, so the slaughter business can enjoy lower costs, which is beneficial to the company's inventory replenishment. Pig prices are expected to rise in the second half of the year, and pig inventories are expected to help the company's slaughter business release profit elasticity.
The multi-category layout of the prepared food business creates an increase in the company's performance. In terms of products and R&D, the company will rely on food R&D centers in Shandong, Shanghai and Sichuan to create a “trinity” R&D pattern and develop corresponding product categories at different R&D centers. It can quickly grasp the needs and market trends of local customers, deeply grasp local food flavors and customer preferences, and continue to promote active research and development of specialty foods. In terms of production, the company's prepared vegetable production capacity will reach 330,000 tons/year in the future, thus supporting the continuous expansion of the prepared vegetable business scale.
Profit forecasts and investment suggestions: Based on pig price trends, we adjusted our pork price estimates, so the company's slaughter business revenue forecast changed; as consumption scenarios were gradually liberalized after the epidemic and consumption power gradually recovered, we also adjusted our food processing business forecasts. The company's revenue for 2023/2024/2025 is estimated to be 184/204/21.5 billion yuan respectively (of which the pre-2023/2024 value was 229/25.8 billion yuan respectively), and the net profit of the parent is 20/41/280 million yuan respectively (of which the pre-2023/2024 value was 22/380 million yuan respectively), and the corresponding PE is 46.00X/21.81X/32.22X. Referring to the historical valuation levels of comparable companies and Longda in the industry, and the fact that future food processing business can drive the company's overall gross margin increase in the long term, the company was given 30 times PE in 2024 (originally 55x PE in 2023), with a corresponding target price of 11.5 yuan (previous value of 11.0 yuan), maintaining the “superior market” rating.
Risk warning: pork price fluctuations, food safety risks, promotion of prepared food products falls short of expectations.