Incidents:
The company released its 2023 annual report and 2024 quarterly report: 1) Achieved operating income of 26.949 billion yuan in 2023, a year-on-year increase of 1.55%; realized net profit of 1,526 billion yuan, a year-on-year decrease of -1228.76%; 2) achieved operating income of 4.880 billion yuan in the first quarter of 2024, a year-on-year decrease of 25.19%; net profit to mother was -198 million yuan, and losses narrowed by 41.94% year on year. The company's pig sales grew rapidly, and costs also declined quarterly. The average initial loss in the first quarter of 2024 was significantly lower than in 2023.
Comment: Sales have grown rapidly, and feed profitability has improved. Breeding volume continued to grow, and the average loss in Q1 narrowed markedly in Q1 in '24. The number of pigs released by the company for the full year of '23 and the first quarter of '24 was 3.712,600 and 947,000, respectively, an increase of 72.05% and 20.78% over the previous year, respectively. Under multiple factors such as improving capacity utilization, optimizing the pig breeding system, and falling feed prices, the company's breeding costs continued to decline every quarter. The fourth quarter of 2023 fell 0.9 yuan/kg compared to the first quarter, and further declined in the first quarter of '24. However, since the industry is still at the bottom of the cycle, the company's breeding costs are still higher than pig prices, so the pig farming business is losing a lot. We expect that for the full year of 2023 and the first quarter of 2024, the company's fat pig head will lose about 410 yuan and 210 yuan.
Feed: Increased profitability. The company's total feed sales volume in '23 was 7.0831 million tons, up 14.87% year on year. The company's feed products have transformed into high-end gross profit products, and sales of high-margin products such as pig feed have increased. The gross margin of the company's feed business also increased 0.5 percentage points year-on-year in '23. We expect the feed business to contribute about 280 million in profit in '23.
The number of releases continues to rise, and there is still a lot of room for cost reduction
The company's goal is to release 4.5 to 5 million heads in 2024. The long-term goal is to release 10 million heads a year and maintain a relatively rapid growth rate. The main reason for the company's cost reduction and efficiency is that the pig breeding system will gradually transition from the “New American” to the “New Danish” pig breeding system with high breeding performance, and PSY will continue to rise; second, there is still plenty of room for improvement in the capacity utilization rate of the company's existing self-built farm.
Profit forecasting and investment ratings
Pig prices are expected to rise moderately in the second half of '24. The company's listing is growing rapidly and costs continue to drop. As the industry cycle picks up, performance will improve markedly. We expect the company's 2024-2026 EPS to be 0.20 yuan, 0.76 yuan, and 0.58 yuan respectively. We are optimistic about the company's growth and maintain a “buy” rating.
Risk warning: Risk of slow release of production capacity, risk of demand falling short of expectations.