Incidents:

The company disclosed its 2023 annual report, achieving revenue of 116.117 billion yuan, a year-on-year increase of 10.89%; net profit to mother of 2,741 billion yuan, a year-on-year decrease of 7.31%; and plans to distribute cash dividends of 5.00 yuan (tax included) for every 10 shares to shareholders.

The company disclosed its 2024 quarterly report and achieved revenue of 23.172 billion yuan, down 0.80% year on year and 20.62% month on month; net profit to mother was 861 million yuan, up 111.00% year on year, up 75.77% month on month.

The aquaculture industry is sluggish, putting a slight pressure on the company's performance in '23

In 2023, the company's gross sales margin was 8.47% (-0.80pcts year on year), and the net sales margin was 2.47% (-0.55pcts year over year). The year-on-year decline in the company's profit in 2023 was mainly due to losses in the farming business. In 2023, the company's sales/management/R&D/financial expenses were 22.59/26.17/7.85/513 million yuan, respectively, +14.04%/+1.27%/+10.35%/-14.12% year over year; among them, the increase in sales expenses was due to the expansion of the company's sales scale, increase in personnel, increase in salary levels, and increase in business promotion expenses.

Feed sales grew rapidly, and the breeding and animal protection business simultaneously developed in 2023 with overseas feed sales of 22.6 million tons (+2.36 million tons year on year). ① Aquatic feed achieved export sales volume of 5.24 million tons (+2% year over year), of which sales of special water materials increased 13% year on year and sales of general water materials fell 9% year on year; ② poultry feed achieved export sales of 11.3 million tons (+13% year over year); ③ pig feed achieved export sales volume of 5.79 million tons, up 17% year on year; ④ ruminant feed achieved a 70% year-on-year increase. In 2023, the company's seedling business revenue was about 1.3 billion yuan, of which shrimp fry revenue increased by about 29%; animal insurance business revenue was 1.1 billion yuan, a slight increase over the previous year.

The company's pig breeding efficiency has improved significantly, and the market slump has put pressure on the company's breeding side to achieve revenue of 15.492 billion yuan (+24.38% year over year). ① In 2023, the company released about 4.6 million pigs in the whole year, the annual breeding volume increased 26%, and the survival rate of the fattening terminal increased to over 97.5%, and breeding efficiency improved significantly. ② In 2023, the company's aquaculture achieved revenue of about 1.4 billion yuan, of which the raw fish farming business was affected by low market prices and lost more than 300 million yuan.

Profit forecasting

The company's revenue for 2024-2026 is estimated to be 1254.64/1364.66/149.268 billion yuan, respectively, with year-on-year growth rates of 8.05%/8.77%/9.38%, net profit to mother of 40.44/5131/5.790 billion yuan respectively, 47.51%/26.88%/12.86%, and EPS of 2.43/3.08/3.48 yuan/share, respectively. In view of the company being a leader in the feed industry and the recovery in downstream farming, we gave the company 25 times PE in 2024, with a target price of 60.76 yuan, and a “buy” rating.

Risk warning: large fluctuations in raw material prices, extreme weather, sluggish downstream farming boom, etc.