Achieved net profit of $541 million (yoy +247%) in 2023, maintaining a “buy” rating
The company released its annual report and achieved revenue of 3.225 billion yuan (yoy +53%) and net profit of 541 million yuan (yoy +247%) in 2023. Of these, 23Q4 achieved revenue of 566 million yuan (yoy -18%, qoq -30%) and net profit to mother of 143 million yuan (year-on-year loss). We maintain the 2024/25 profit forecast and add the 2026 forecast. The company's net profit for 2024/25/26 is estimated to be 12.40/12.71/599 billion yuan, respectively, and the corresponding EPS is 1.12/1.15/0.54 yuan. Comparable companies agreed to expect 12 times PE in 2024. Considering that domestic production capacity for high-quality ancestral chicken breeding is still scarce, the price of probiotic Li & Fung varieties is expected to remain high, and that the supply of commercial chicken seedlings may shrink around mid-2024, we gave Probiotics a profit of 15 times PE in 2024, corresponding to a target price of 16.8 yuan, maintaining a “buy” rating.
The sharp rise in volume and price throughout the year led to a high profit increase, and the fall in the price of chicken seedlings in 23Q4 put pressure on profits
The significant increase in revenue and net profit to mother in 2023 was mainly due to a marked increase in the price of white feather broiler seedlings, while sales of commercial chicken surrogate seedlings increased. In 2023, the company sold 645 million white feather broiler seedlings, +12% over the same period. The increase was mainly due to commercial chicken seedlings; the average price was about 4.09 yuan/piece, +48% year over year, with the price of parent chicken seedlings increasing by about 1 times. We estimate the profit of prebiotic parent generation and commercial white feather broiler seedlings in 2023 is about 25-30 yuan/set (year-on-year increase or more than 5 times) and 0.2 to 0.3 yuan/set (year-on-year increase) and 0.2 to 0.3 yuan/piece (year-on-year loss), respectively. In 23Q4, Probiotics sold 142 million white feather broiler seedlings, +3% year over year, with an average sales price of 2.96 yuan/piece, or -24% year over year. Among them, the price of commercial chicken seedlings dropped significantly, mainly due to sufficient supply in the industry and poor enthusiasm for downstream patching. At the same time, we estimate that the full cost of 23Q4 prebiotic white feather broiler seedlings may have increased. We estimate that the profit of a single set of parent and commercial chicken seedlings is about 10 to 15 yuan/set (year-on-year decline of about 30% to 40%) and -1.5 to -1 yuan/piece (year-on-year increase in losses), respectively.
Lifeng and Yibeng 909 have excellent performance, and can be expected to continue to expand in scale
The white feather chicken seedlings currently sold by the company are the new product “Lifeng”, which has obvious competitive advantages in egg production rate, meat ratio, disease resistance, and survival rate. Currently, its parent's chicken seedlings account for about 20% and commercial chicken seedlings account for about 8%; at the same time, the “Probiotic 909” independently developed by the company is recognized by the market for its excellent production performance. Judging from the company's sales growth rate and product performance, we believe that the company's plan to sell a total of 1 billion birds in 2025 for commercial-generation broiler seedlings and probiotics in 909 is highly achievable, and the scale and market share can be expected to continue to increase.
The contraction in supply is expected to gradually materialize. The price of commercial surrogate seedlings may increase, and the number of domestic white feather broiler ancestral renewals decreased by 23% year-on-year in 2022. It has now spread to the generation of broiler breeding among parents. We expect that the current supply and demand gap for white feather broilers in 2024 is expected to reverse the upward trend in the price of white feather chicken seedlings, usher in a long cycle this year and next two years, or drive the price of the company's commercial chicken seedlings to rise.
At the same time, the domestic ancestral renewal structure continues to deteriorate, and the company's breed advantage is expected to keep the price of chicken seedlings relatively high for their parents. The company's profit growth can be expected.
Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.