Q1 average loss deepened year-on-year, maintaining a “buy” rating
Makihara Co., Ltd. released its 2023 annual report and 2024 quarterly report. In 2023, we achieved revenue of 110.9 billion yuan (yoy -11%) and net profit of 4.263 billion yuan (yoy -132%); of these, Q4 achieved revenue of 27.9 billion yuan (yoy -37%, qoq -10%) and net profit to mother of 2,421 billion yuan (yoy -121%, qoq -358%).
In Q1 2024, we achieved revenue of 26.3 billion yuan (yoy +8.57%, qoq -5.81%) and net profit to mother of 2.379 billion yuan (yoy -99%, qoq +1.74%). We expect the company's 2024/25/26 net profit to be 179/399/36.8 billion yuan, corresponding BVPS of 14.76/21.86/28.39 yuan. Referring to comparable company Wind's consistent expectations of 3.43x PB in 2024, considering the company's stable leading advantage and continuous cost reduction and efficiency, we will give the company 3.53x PB for 24 years, with a target price of 52.10 yuan, maintaining the “buy” rating.
The growth rate of sales slowed, and the average loss in 24Q1 deepened year-on-year
In 2023, the company listed 63.82 million pigs, +4.27% over the same period last year, and the growth rate of listing has slowed. The decline in revenue and profit was mainly affected by a year-on-year decline in pig prices of nearly 20%. We estimate the average loss for the first year of 2023 was about 50 to 100 yuan, and the total cost of commercial pigs was about 14.8 to 15.2 yuan/kg. At the same time, the company slaughtered 13.26 million pigs in 2023, +80% compared to the same period last year, but the operating conditions may still need to be improved. We estimate that the average loss of head slaughtered in 2023 is about 50 to 80 yuan, which is basically the same as the previous year. In 23Q4 and 24Q1, the company listed 16.81 million pigs and 16.01 million pigs respectively. Affected by costs, the average loss of 24Q1 pigs has not narrowed. We estimate that the average loss for both quarters was around 110 to 150 yuan, and the full cost was about 14.8 to 15.2 yuan/kg and 15.4 to 15.8 yuan/kg, respectively; on a year-on-year basis, under the double pressure of the year-on-year decline in pig prices and the total cost increase of commercial pigs, the company's average loss in 24Q1 deepened markedly. The company's 24Q1 total cost increase was mainly due to the impact of the winter epidemic, etc.
24Q2 pig prices are expected to rise steadily, and production capacity may be reduced or exceed expectations
Domestic breeding sows showed an accelerated trend of degeneration at 23H2 and continued degeneration in 24Q1, which may be expected to drive the pig cycle to reverse in 2024 and enter a relatively continuous profit period in the pig breeding industry. At the same time, under pressure from cash flow, sow production capacity declines or lags behind the rebound in pig prices and sow production capacity or continued elimination, which is expected to drive a high degree of cycle reversal and sustainability exceeding expectations.
In 2024, 6600 to 72 million heads are expected to be released, +3% to 13% year-on-year. Costs will continue to expand in 2024. The company expects to release 6600 to 72 million pigs, an increase of about 3% to 13% over the previous year. There is little financial pressure on the company. Against the backdrop of continued weak pig prices, the company strengthened cash flow management. The net cash flow generated by the company's operating activities in 2023 and 24Q1 was about 9.9 billion yuan and 5.1 billion yuan, respectively.
In terms of cost, cost reduction and potential expansion are still the main topics in the company's current pig breeding business. The peak of the winter epidemic ended in December 2023. As the company's production management gradually returned to the right track, the cost of superimposed feed ingredients decreased, and cost amortization declined, etc., the company's total farming costs improved markedly in March.
We expect that the company still has enough room to explore its cost potential, and the 2024 target of 14 yuan/kg is highly achievable.
Risk warning: the number of pigs released fell short of expectations, pig prices fell short of expectations, large-scale animal diseases broke out, etc.