1Q24 results are in line with our expectations

Xinwufeng announced 1Q24 results: revenue +18.1% year-on-year to 1.43 billion yuan, and net profit to mother of -0.3 billion yuan to -250 million yuan year-on-year. The average 1Q24 pig price was below the company's full cost line, putting pressure on 1Q24's performance, and 1Q24's performance was in line with our expectations.

Development trends

The pig market is expanding rapidly, and the feed and slaughter business is developing rapidly. 1) Pigs: The number of pigs sold is expanding rapidly, offsetting the impact of low pig prices. In terms of release volume, 1Q24 sales volume was +48.52% to 933,800 heads; in terms of price, the company mainly sells commercial pigs and piglets. According to Ganglian and Yongyi, the price of 1Q24 commercial pigs was 14.54 yuan/kg, -3%/-1% year on month; the average price of 7 kg piglets was 380 yuan/head, -18%/+118% year-on-month. 2) Feed: 1Q24 feed sales volume was 4146 tons, +54.11% year-on-year.

3) Slaughtered meat: 1Q24 butcher meat sales were +23.99% year-on-year to 16,000 tons.

Costs have room for further exploration, and productive biological assets are relatively stable. 1) Pig breeding: We estimate that the full cost of the company 1Q24 is about 17.5 yuan/kg, down from 4Q23. We believe that with the optimization of the company's pig breeds and the increase in production capacity utilization, there is still room for future cost expansion. 2) Financial situation: The company's balance ratio at the end of 1Q24 was 76%, up 1ppt from the end of 4Q23. If the impact of rental debt was excluded, it was 64%. We judge that the slump in pig prices in 1Q24 brought about an increase in financial pressure to a certain extent. Overall, the company relies on the Hunan Provincial State-owned Assets Administration Commission. The credit limit at the end of '23 was 5 billion yuan, and there may be some financial support. 3) Biological assets and inventory: 1Q24's productive biological assets were 870 million yuan, down 8.5% from 4Q23; 1Q24's inventory was 1.97 billion yuan, up 5.4% from 4Q23. We believe that the company's biological assets are stable, and production capacity is expected to continue to grow.

Adequate production capacity supports growth, and the process of reducing costs and increasing efficiency releases the core foundation for performance. 1) Release growth: The company has sufficient production capacity, expansion of leasing models, and commissioning of fund-raising projects to provide a basis for incremental listing. The number of sows that the company was able to breed at the end of '23 was +35% year-on-year to 209,900. We judge or support the company to produce 4 to 4.5 million heads in 24 years. 2) Increase efficiency and reduce costs: The company continues to make efforts to reduce costs and increase efficiency by strengthening breeding benchmarking management, introducing high-performance breeding pigs, and optimizing the ratio between fattening and sow production capacity. We believe that cost reduction is the core foundation for the company's performance release. 3) Integrated layout: The company's upstream feed self-sufficiency capacity has increased, and 780,000 tons of feed production capacity were added and completed in '23; the scale of downstream slaughter continued to increase. At the end of '23, a slaughter production capacity of 2.05 million heads was laid out. We believe that the entire industry chain collaborated or marginally improved the company's operating efficiency.

Profit forecasting and valuation

We maintain our 2024/25 net profit forecast of $115/6.4 billion. Maintain an outperforming industry rating. Based on the SOTP valuation method, maintain a target price of 10 yuan, corresponding to a 13% upward space.

risks

Sales volume fell short of expectations; rising raw material costs; epidemic and policy risks.