Key points of investment:
The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 690 million yuan, -24.8% year-on-year, and +21.4% month-on-month; realized net profit to mother of 110 million yuan, -65% year-on-year, reversing losses (23Q4 company loss of 140 million yuan). The chicken seedlings boom was high and low in '23. The company's performance improved markedly month-on-month during the reporting period, but due to the high base, the year-on-year pressure was clearly on. Due to a marked decline in sales volume and price of chicken seedlings, and an investment income of 13.35 million yuan was recorded during the reporting period (due to the losses of the participating company Baoquanling Agriculture and Animal Husbandry in Beidahuang), the company's performance was slightly lower than our previous expectations (we expect the company to achieve net profit of 150 million yuan in 24Q1).
The price of chicken seedlings rebounded month-on-month, but there was a sharp year-on-year decline, putting pressure on current results. Referring to the company's monthly sales report, in the first quarter of 2024, the company sold a total of 130 million chicken seedlings (including parent breeding chickens and commercial chicken seedlings), -13% year-on-month, -8% month-on-month. The average sales price of chicken seedlings was 4.2 yuan/feather, -19% year-on-year and +42% month-on-month. Referring to data from the Animal Husbandry Association, the sales price of the company's parent breeding chicken and commercial chicken seedlings is expected to drop significantly (in the first quarter of 2024, the national average sales price of white feather broiler parent surrogate chicken seedlings was about 36 yuan/set, -36% year over year; the average sales price of commercial chicken surrogate chicken seedlings nationwide was 3.46 yuan/feather, -23% year over year).
We expect the 24Q1 company's parents to make a profit of 15-20 yuan for chicken breeding sets, a profit of about 0.5 yuan for commercial chicken seedlings, and a total profit of about 120-140 million yuan for the chicken seedlings sales business.
24Q1 Probiotic 909 sales are under pressure, and the pig breeding business continues to expand. In the first quarter of 2024, the company sold a total of 0.23 million yuan of probiotic 909 chicken seedlings, or -2.6% year-on-year, achieving sales revenue of 0.29 million yuan, or -32.9% year-on-year, with an average sales price of 1.26 yuan/feather (average price of about 1.5 yuan/feather for the whole year of '23). Affected by the boom in the meat and poultry industry, the sales volume and price of 24Q1 Yisheng 909 fell sharply.
During the reporting period, the company sold 3,175 breeding pigs, +709.9% year over year, achieving sales revenue of 100 million yuan, or +484.2% year over year.
It is expected that 24Q1 sales of Yisheng 909 will be near the break-even line, and there may be a slight loss in breeding pig sales. Looking ahead, it is expected that Probiotic 909 will continue to be promoted steadily, and the pig breeding business will continue to expand after fixed production capacity is implemented one after another.
I am optimistic about the recovery of the white feather broiler industry in 2024 and maintain the company's “increase” rating. At the end of 2022, ancestral chicken stocks declined at a high level, which was transmitted to parent-generation chicken breeding in mid-2023. It is expected that the national supply of commercial chicken seedlings will decline somewhat in 2024, catalyzing the continued upward trend in the industry. As a leading white feather broiler breeder, the company is expected to fully benefit. Maintaining the profit forecast, the company is expected to achieve operating income of 36.5/33.4/3.40 billion yuan in 2024-2026 and achieve net profit of 12.1/8.4 billion yuan. The current stock price corresponds to the PE valuation level of 9X/13X/16X, maintaining the “Overweight” rating.
Risk warning: the price of chicken seedlings fluctuates greatly; the risk of an avian influenza epidemic; the price of raw materials fluctuates greatly.