Event: On August 31, the company released its semi-annual report for 2023. In 23H1, the company achieved revenue/net profit of 33.37/ -28 billion yuan, respectively, +0.77% /loss over the previous year, and EPS was -0.06 yuan. Total 23Q2 achieved revenue/net profit of 1805/-34 million yuan, respectively -1.99% /loss over the previous year.
23H1 The eel farming and food business was relatively sluggish due to demand, and the feed business grew steadily. 23H1's special water/livestock and poultry feeds/breeding and food businesses achieved revenue of 917/21.57/192 million yuan respectively, +9.66%/+12.44%/-60.01%, respectively, over the previous year. The company's feed business revenue has maintained double-digit growth, but operating pressure has increased. The eel farming and food business were affected by the pace of fish production and low downstream demand, and revenue declined markedly.
The volume and price of the feed business have risen sharply, but it has not been possible to fully cover the cost pressure, and the sales volume of the aquaculture and food business has declined markedly.
23H1's special water/livestock and poultry materials sold 936/624,300 tons respectively, +3.38%/+8.22%; the average sales price was 9797/3455 (yuan/ton), respectively, +6.12%/+3.88%. The sales volume of eel/grilled eel was 1428/895.14 tons, or -57.89%/-11.47% compared to the same period. The slow pace of fish production and weak downstream demand are still the main reasons for the sluggish sales volume in the aquaculture and food business. By the end of 23H1, the company's expendable biological assets were 1,848 million yuan, +17.86% from the beginning of the year, and +117.92% year-on-year. There is still potential for future growth.
23H1 gross margin declined significantly, and the cost ratio increased year-on-year during the period. 23H1/23Q2's gross margin was 8.15%/8.04%, -4.36 pct/-5.35 pct over the previous month. The reason is that the increase in feed prices is not enough to cover the increase in costs, and shipments of eel products with high gross margins have declined. The 23H1/23Q2 management expense ratio was 2.62%/2.74%, compared to +0.55pct/+1.02pct. The reason is (1) increased labor costs due to an increase in administrative staff, and (2) additional equity incentive expenses. The financial expense ratio was 1.94%/2.42%, compared to +1.01pct/+1.34pct. The reason is (1) increased interest expenses due to increased borrowing; (2) increased interest expenses on leasing liabilities.
Investment advice: Based on the 23H1 operating situation, we lowered our profit forecast. Net profit from 2023 to 2025 is estimated to be 233/498/733 million yuan, +78.9%/+113.5%/+47.2% year-on-year, corresponding to a PE of 29.6/13.9/9.4 times. The company's feed business has maintained steady growth. In the future, as the pace of fish production accelerates and downstream demand recovers, the aquaculture and food business is expected to break out of the trough. A fundamental recovery can be expected, and the “buy” rating will be maintained.
Risk warning: Feed business expansion falls short of expectations, insufficient fishing for eel fry, cost pressure, risk of disease, etc.