Brief performance review

On January 31, 2024, the company released its 2023 performance forecast. The company's net profit due to mother in 2023 was a loss of 1.35 to 1.65 billion yuan, with a profit of 135 million yuan for the same period last year; net profit after deducting non-return to mother was a loss of 1.3 to 1.6 billion yuan, and profit of 102 million yuan for the same period last year. The net profit attributable to the mother of Q4 was a loss of 4.4 to 740 million yuan, and a profit of 101 million yuan was achieved in the same period last year.

The company's losses were mainly due to a 22% drop in the average sales price of the company's fat pigs in 2023 compared to 2022; the company depreciated the stored assets such as expendable biological assets and productive biological assets.

Management analysis

The number of pigs released has continued to grow rapidly, and is expected to grow rapidly in 24 years: in 2023, the company sold a total of 3.712,600 pigs, an increase of 72.05% over the previous year, including 3.3865 million commercial pigs and 3261,000 piglets, exceeding the annual target of 3.5 million heads. The company's ability to breed sows remained stable at around 170,000 heads in the fourth quarter. The company currently has a fattening production capacity of 5 million heads. The company continues to expand the “company+farmer” breeding model. According to market conditions, it is expected that the company will grow rapidly in 24 years.

Farming efficiency continues to improve, and the cost side continues to be optimized: in terms of profit, the company lost about 400 yuan in the first 23 years, and farming costs showed a downward trend throughout the year. We estimate that the full cost of Q4 was around 17 yuan/kg. With the increase in the proportion of the company's “Xindan” sows, improvements in feed formulations, and improvements in building breeding management standards, the company's breeding costs are expected to be further reduced.

Capital reserves and hematopoietic capacity are excellent, and bottom production capacity is expanding steadily: as of the end of the third quarter, the company's cash and equivalent balance was 2.8 billion yuan. Against the backdrop of steady development of the feed business and contraction of capital expenditure, operations were steady at the bottom of the cycle. The company's ability to breed sows remained stable at around 170,000 heads in the fourth quarter. The company continued to expand the “company+farmer” breeding model. According to market conditions, it is expected that the company will sell around 4.5 million heads in 24 years.

Profit Forecasts, Valuations, and Ratings

Pig prices continued to be sluggish in 2023, and the industry's production capacity showed a gradual decline throughout the year. According to estimates of Nengfan sow storage data, the pig cycle is expected to reverse in the second half of '24.

We expect the company to achieve net profit of 15.2/1.9/1.74 billion yuan in 23-25 years, -1225%/+113%/+805% year-on-year; corresponding to EPS-1.10/0.14/1.25 yuan. The current price of the company's stock in 24/25 was 45/5 times the PE valuation, maintaining a “buy” rating.

Risk warning

Risk of pig price fluctuations; risk of epidemic; risk of fluctuations in raw material prices.