Incident: The sharp loss in the 23-year performance was mainly due to the continued slump in pig prices compounded by the impact of the epidemic. The company accumulated asset impairment reserves of about 450 million yuan for inventory and biological assets, and calculated asset disposal losses of about 130 million yuan.
In order to reverse losses, the company reduced its two wings of business, including shutting down inefficient slaughter plants, suspending trade operations while optimizing breeding procurement models, etc.; at the same time, driven by rapid growth in the main food business, the company's Q1 performance improvement and profitability recovery are beginning to bear fruit.
The short-term two-wing business was under pressure, and prepared food continued to grow at a high rate. By category, fresh frozen meat/cooked meat products/prepared food/import trade revenue was -20%/-29%/+51%/-30%, respectively; among them, the slaughter business had slaughtered 6.4354 million pigs in 23 years, or +9.19%, but the average head price fell sharply by 26.7%, leading to losses in slaughter gross profit; while prepared foods were led by large single products, maintained rapid growth under channel expansion. By the end of 23, the company had developed more than 1,300 prepared food distributors, while focusing on creating models for the region For example, the pre-made food distribution market in Shandong Regional sales increased 38% year-on-year for the year, and key markets in East China and North China grew at the same time. In terms of new products, the company has developed 113 new products throughout the year, achieving sales of about 440 million yuan; of these, 7 new products with sales of tens of millions and 46 new million-grade products; in terms of large single products, the revenue from the fat sausage category exceeded 300 million in '23, the sausage category surpassed 100 million, and the crispy meat and bacon category have also broken 100 million yuan. By region, Shandong/East China/Central China/North China/South China/Northeast/Southwest/Northwest China and others, revenue was -15%/-30%/-19%/-11%/+26%/+37%/-12%/-29%.
With the optimized business structure, profitability is expected to continue to improve throughout the year. In terms of profit, weak pig prices in '23 clearly put pressure on the profits of the slaughter and breeding business, which in turn dragged down the company's annual gross profit margin, which was about -1.58%; however, along with improvements in the Q1 business structure in Q1 in '24, including a decline in food-side gift boxes and trade and breeding business volume, the gross sales margin was 6.12%, +1.45 pcts year over year. On the cost side, there was an increase. Sales/management/R&D/finance rates were +0.07/+0.51/+0.03/+0.33pct year-on-year; in addition, this year's Q1 sales/management/R&D/finance rates were +0.18/+0.63/+0.02/+0.45pct year-on-year. Finally, the net sales margin for Q1 in '24 was 1.18%, +0.12pct year-on-year.
The main business focuses on large customers and continues to incubate large single products; at the same time, it optimizes both slaughter and breeding businesses, with the goal of turning losses into profits throughout the year. First, the company adheres to a food-centered integrated two-wing strategy. Among them, the main food industry further focuses on large customers while actively developing lower back customers. Among them, Big B grew 30% + in 23, and the growth rate of Big B is expected to be faster than that of Small and Medium B in 24; on the product side, the company continues to promote the 1+3+N big single product strategy, where the sausage category Q1 also increased 35% +. Finally, the company aimed to reverse losses in 24, with profit as the core, including optimizing production capacity at the slaughterhouse side, temporarily closing some factories with poor profitability, and increasing high-profit catering companies and food processing customers. Continued improvement in performance throughout the year can be expected.
Profit forecast and investment advice: In view of the continued slump in pig prices, net profit due to the company's performance recovery cycle being delayed, the 2024-2025 net profit (value was 219.305 million yuan in 24-25 years) was lowered to 1.1/2.28/305 million yuan in 24-26, respectively, an increase of 107%/108%/34%. Furthermore, considering the characteristics of the main food industry, such as growth, stronger profitability, and weaker periodicity, the superposition company optimizes its two-tier business, and there is a strong trend of continuous improvement in performance. Maintain a “hold” rating.
Risk warning: food quality and safety, expansion of large products falling short of expectations, price fluctuations of major raw materials, etc.