Net profit attributable to mother in 2024Q1 was $56.677 million, turning a year-on-year loss into a profit

The company released its 2023 annual report and 2024 quarterly report: in 2023, it achieved revenue of 19.03 billion yuan, a year-on-year increase of 12%, and realized net profit of 1,363 million yuan, and net profit to mother of 280 million yuan in 2022; 2024Q1 achieved revenue of 3.78 billion yuan, a year-on-year decrease of 2.9%, and realized net profit of 56.77 million yuan, turning a year-on-year loss into a profit. In 2023, the company's main business profit structure was 15.1 billion yuan, feed 125 million yuan, pharmaceuticals 100 million yuan, protein oil and fat 0.43 million yuan, corn storage - 88 million yuan; 2024Q1 main business profit composition, breeding business of 0.1 billion yuan (of which, depreciation was reversed to 186 million yuan), 45 million yuan for feed, 50 million yuan for pharmaceuticals, 12 million yuan for protein oil, and loss of 18 million yuan for corn storage.

l The 2023 release target was successfully completed. The total cost of 2024Q1 pigs was reduced to 16.3 yuan/kg in 2023, the company released 2,818 million pigs, an increase of 39% over the previous year, and the annual target of 2.8 million pigs was successfully completed. In 2023, the company's aquaculture business lost 15.1 billion yuan, of which 454 million yuan was calculated at the end of the year. If the impact of impairment preparations was deducted, the actual loss in the farming business was 1,056 million yuan. In 2023, the overall cost of the company's fattening pigs showed a downward trend. In the first half of the year, it dropped to 17.4 yuan/kg in Q3, and further dropped to 16.5 yuan/kg in September and October. At the end of the year, due to non-plague epidemics and the clean-up of feed farming operations, there was a sharp rebound in costs. According to our estimates, the total cost of fattening pigs in November-December was about 18 yuan/kg.

Since September 2023, the company's breeding capacity of sows has stabilized at 140,000, with over 24 PSY heads, laying a solid foundation for the 2024 target of 3 to 3.5 million pigs; 2024Q1, the number of pigs released by the company was 647,200, an increase of 13.7% over the previous year, and the number of pigs released is expected to increase significantly in the second half of the year.

2024Q1's breeding business made a profit of 100 million yuan. If depreciation was excluded, the breeding business lost 176 million yuan. The price of fattening pigs in January-March was 13.07 yuan/kg, 13.27 yuan/kg, and 13.72 yuan/kg respectively. According to our estimates, the total cost of fattening pigs by 2024Q1 has been reduced to 16.3 yuan/kg.

l The company's feed and vaccine business is growing steadily

The company's feed and vaccine business is growing steadily. In 2023, the company's feed business revenue was 6.49 billion yuan, up 17.4% year on year. Feed revenue accounted for 34.1% of revenue. Feed sales (including domestic sales) were 2.8041 million tons, up 20.8% year on year, gross profit margin 10.2% year on year, up 0.4 percentage points year on year, gross profit of 235 yuan per ton and net profit of 44.6 yuan per ton. In 2023, the company's pharmaceutical business revenue was 996 million yuan, up 5.9% year on year. Pharmaceutical business revenue accounted for 5.2% of revenue. Animal vaccine sales volume was 1.74 billion, up 33.2% year on year, and gross profit margin was 62.6%, down 1.5 percentage points year on year. 2024Q1, the company's feed sales volume (including domestic sales) was 669,000 tons, up 13.5% year on year, with net profit of 67.3 yuan per ton; animal vaccine revenue was 337 million yuan, up 13.1% year on year.

l The pig logic has changed to a reversal of pig prices. The impact cycle of heavy distribution and torrential rain in the south is high. From December 2022 to March 2024, the official production capacity of sows was reduced by about 9%. The market logic has changed from capacity reduction to pig price reversal. The reason why pig prices have been significantly higher than market expectations since this year is that the 2023Q4 epidemic in the north caused pigs to be released early, and the concentrated release of large pigs before the Spring Festival caused a relative shortage of large weight pigs after the holiday season. Price differences in standard fertilizer prices, pressure, and secondary fattening supported pig prices. Judging from the current point of time, changes in the average weight of pigs and the impact of torrential rain in the south on the epidemic will affect the price height of the current pig cycle.

Investment advice

The company's various businesses are expanding steadily. We expect the company to release 3.5 million pigs, 4 million, and 4.5 million in 2024-2026, achieving operating income of 22.817 billion yuan, 26.519 billion yuan, and 28.441 billion yuan, an increase of 19.9%, 16.2%, and 7.2% over the previous year, corresponding to net profit of 508 million yuan, 1,753 billion yuan, and net profit to mother of 1.294 billion yuan in 2024 and 1,156 billion yuan in 2025. The reason for this large adjustment was revised 24-25 The number of pigs released per year and pig price expectations kept the “buy” rating unchanged.

Risk warning

Outbreak; pig prices rose later than expected.