1. Leading integrated management of the breeding industry chain. The three main businesses collaboratively developed Tang Renshen was founded in 1992. As the first batch of national key leading enterprises in agricultural industrialization, it is a leading domestic production and processing enterprise for feed, pork and meat products. In 2023, the company released 3.71 million pigs, an increase of 72%; feed sales were 7.08 million tons, an increase of 15%. Up to now, the company's breeding business has built more than 20 breeding bases and a number of modern building breeding bases in Hunan, Liangguang and other provinces, with a production capacity of 6 million pigs. The future focus is on regional layout in Hunan, Liangguang, Hainan, etc., with a medium- to long-term planned production capacity target of 10 million heads; the feed business has more than 100 domestic subsidiaries, with a production capacity of 14 million tons; slaughter and meat products have Chinese and Western meat processing bases and multiple chilled meat processing production lines in Hunan and other places, with production capacity of 100,000 tons and 2 million heads respectively.

2. The pig farming industry is definitely improving on the right side of the cycle. The company will fully release profit flexibility. Since 2006, the pig farming industry has experienced 4 rounds of pig cycles. Currently, pig prices are on the bottom right side of the 4th round, and are about to usher in a new upward cycle. The characteristics on the bottom right side of the bottom are: 1) The bottom of the pig price slump has continued for a long time. Since the beginning of 2023, pig prices have continued to be sluggish in the 13-16 yuan range, and the industry has accumulated losses for 14 months, which is longer than any previous bottom stage; 2) Since the beginning of 2023, the national breeding level of sows has continued to decline. According to various data, it is estimated that the total production capacity of the industry has been reduced by about 10%, and the prerequisites for starting a new cycle are basically in place. 3) Since the beginning of March, pig prices have not been weak during the off-season and have gradually risen, which indicates that a new cycle is starting.

As pig prices rise, the gross margin of the company's breeding and meat products business will rise significantly. The gross margin of the feed business has been stable for the past three years, and is expected to pick up in 24/25.

3. The farming business is moving forward with multiple initiatives, and costs are continuously optimized

With the optimization of breeding systems and the improvement of management efficiency, as well as the release of new production capacity and the increase in capacity utilization, cost optimization continues to advance. The company's total cost of pig farming dropped by 1 yuan/kg in 2023, a significant drop. Q1 2024 continued to decline, and its low cost competitiveness was further enhanced.

4. Profit forecast and investment advice

We expect the company's revenue for 2024-2025 to be 36.74/4.314 billion yuan, net profit to mother of 442/1,812 million yuan, and corresponding EPS of 0.31/1.26 yuan/share, respectively. We believe that as an enterprise with rapid breeding expansion and continuous cost optimization, the company is expected to fully benefit from the reversal of the pig cycle and give it a purchase rating.

5. Risk warning

Pig prices fell sharply; cost reduction fell short of expectations; food prices rose sharply; risk of an outbreak of the epidemic, etc.