The company's pig market continues to grow at a high level, feed steadily contributes to profit, and has abundant monetary capital, which is expected to fully support future production capacity construction. Considering that the pig breeding industry is still in a low economic position, combined with the judgment that the cycle runs at a short time and a long pace, we lowered the company's 2023-2024 profit forecast, raised the 2025 profit forecast, predicted the company's EPS for 2023-2025 to be -0.73/0.19/1.11 yuan (the original 2023-2025 EPS forecast was -0.67/0.76/0.09 yuan), referring to the comparable company Makihara Shares. New Hope Wind agreed to have an average valuation of about 7 times PE in 2025. According to the valuation characteristics of cyclical stocks, we gave the company a PE valuation of 7 times in 2025 (expected to be a cyclical boom year), corresponding to the target price of 8 yuan, maintaining a “buy” rating.
Event: Tang Renshen released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 20.87 billion yuan, +11.6% year-on-year, and net profit of 911 million yuan, -2760.8%; of these, 23Q3 achieved revenue of 7.39 billion yuan, +1.1% year-on-year, +6.2% over the previous year, and realized net profit of 247 million yuan, -241.9%, and +23.8% month-on-month. Our comments on this are as follows:
The Q3 release maintained a high increase, and costs declined steadily. In the first three quarters of 2023, the company's pig sales volume was 2,631 million heads (Longhua accounts for 1/3, Meishen accounts for 2/3), +84.9% year-on-year, of which 23Q3 company sold 972,000 pigs, +73.5% year-on-year, and +11.0% month-on-month. As the company's production performance continues to improve, we judge that the complete cost of the Q3 company continued to decline steadily compared to Q2, and that the cost gap between the company and farmers narrowed between its subsistence and self-cultivation and that of the company and farmers. Looking ahead, the company's pig breeding system is currently transitioning from “New American” to “New Dan”. As the company gradually changes to more efficient New Danish sows (psy can reach 28 or more), breeding efficiency is expected to continue to improve. Furthermore, we expect the company to continue to increase the capacity utilization rate of the new site, and the full cost is expected to continue to decline in the future.
The feed business is stable, and profit per ton is expected to increase. The company's feed sales volume in the first three quarters of 2023 was 5.04 million tons (total domestic and foreign sales), up more than 10% year on year. Among them, pig feed accounted for about 45%, poultry feed accounted for about 50%, aquatic feed and other feed sales accounted for about 5%, and pig feed and other feed sales accounted for about 5%. We expect that the share of high-margin feed such as pig feed is still high. We expect 23Q3's feed business to still contribute positive profits. In terms of customer structure, the company has strengthened risk management and control, provided value services to dealers and large-scale farms, and gradually transformed into large customers. The profitability of the feed business is expected to increase in the future.
Cash flow is healthy, and production capacity layout continues to be optimized. Monetary capital at the end of the first three quarters of 2023 was 2,933 billion yuan, +182.4% year-on-year and +86.5% at the end of 23Q2. 23Q3 The company's net operating cash flow was 156 million yuan, +4.0% year on month, -59.3% month on month, net investment cash flow - 152 million yuan, -91.5%, +9.9% month on month, net financing cash flow of 1,271 billion yuan, +830.3% year on year, +439.7% month on month. The company relied on continuous cost reduction, rapid growth in small amounts, and bank credit to reserve sufficient capital during the market slump period. In terms of capacity development, the company's productive biological assets book value at the end of 23Q3 was 548 million yuan, +17.1% year-on-year and -10.7% at the end of 23Q2. In the future, the company is expected to flexibly adopt the two models of self-cultivation and self-cultivation and company+farmer to carry out production capacity construction in accordance with future market changes. We expect that the current capital situation will fully support the company's production capacity construction. At the same time, the company is gradually phasing out production capacity in regions that continue to be affected by the swine fever epidemic and have poor cost performance. Overall production capacity efficiency is expected to improve further in the future.
Risk factors: pig prices did not meet expectations; large fluctuations in raw material prices; animal disease outbreaks; food safety issues; natural disasters; increases in company production capacity did not meet expectations; changes in pig breeding industry policies exceeding expectations, etc.
Profit forecast, valuation and rating: The company's pig market continues to increase at a high level, feed steadily contributes to profit, and abundant monetary capital, which is expected to fully support future production capacity development. Considering that the current pig breeding industry is still at a low level of prosperity, combined with the judgment that the cycle runs at a short time and a long pace, we lowered the company's 2023-2024 profit forecast, raised the 2025 profit forecast, and predicted the 2023-2025 company's EPS to be -0.73/0.19/1.11 yuan (the original 2023-2025 EPS forecast was -0.67/0.76/0.09 yuan), for reference to the comparable company Makihara Shares. New Hope Wind agreed that the average valuation in 2025 would be about 7 times PE. As for the valuation characteristics of cyclical stocks, we gave the company a PE valuation of 7 times for 2025 (expected to be a cyclical boom year), corresponding to the target price of 8 yuan, maintaining a “buy” rating.