Revenue increased steadily, and the fall in pig prices affected net profit returned to the mother. In 2023, H1, the company achieved revenue of 5.82 billion yuan (RMB, same below), an increase of 8.9% over the previous year. Before the fair value of biological assets was adjusted, the company's gross margin was 6.5%, an increase of 23.4 pcts over the previous year. Net profit before the fair value adjustment for biological assets during the period was 170 million yuan, with a loss of 1.4 billion yuan in the same period last year; net profit after adjustment for the fair value of biological assets was -170 million yuan, compared to -450 million yuan for the same period last year.
Hog prices continue to be sluggish. In the first half of 2023, due to sufficient pork supply, combined with the Spring Festival, we entered a low season for traditional pork consumption. At the end of June, the average price of pigs in 22 provinces and cities across the country fell to 13.95 yuan/kg, down 24% from the end of 2022. In 2023 H1, the number of pigs released by the company increased 7.9% year on year to 2,447 million heads, and the company's pig breeding business revenue increased 14.3% year on year to 3.56 billion yuan.
Sales of fresh pork increased, while sales of branded boxed pork declined. In 2023 H1, the company sold 123,000 tons of fresh pork, up 13.0% year on year, and segment revenue increased 15.6% year on year to 2.13 billion yuan. Due to the gradual recovery in consumption through catering channels, household pork consumption was affected. The company sold 20.942 million boxes of boxed pork, a year-on-year decrease of 23.1%.
Prices are inverted, and the meat import business is actively shrinking. In H1 in 2023, as domestic food and beverage consumption picked up, demand for beef rose; due to the price of imported frozen pork products being inverted, the company took the initiative to reduce pork imports, focusing mainly on pork by-products. In H1 in 2023, the company's meat import business revenue increased 7.0% year on year to 14.01 billion yuan, net profit of 0.2 billion yuan, and net profit of 190 million yuan for the same period last year.
Investment advice: We expect the company's revenue for 2023/2024/2025 to be 143.5/160.6/17.99 billion yuan, respectively +11.3%/+11.9%/+12.0% year-on-year, and net profit before the fair value adjustment of biological assets is 1,56/17.7/1.95 billion yuan. Maintaining the “buy” rating, the target price is HK$2.01, corresponding to 13 times PE in 2023.
Risk warning: food safety issues; rising feed raw material costs exceeding expectations; African swine fever; terminal sales fall short of expectations; pig price fluctuations.