\u3000\u3 Shengda Resources Co.Ltd(000603) 477 Leshan Giantstar Farming&Husbandry Corporation Limited(603477) )
Key investment points
Investment logic: 1) the current pig price is about] 12.2 yuan / kg, the breeding continues to suffer losses, the trend of capacity removal is obvious, and it still takes time to clear; 2) The company introduces pic high-quality ancestral breeding pigs and breeds four Yin breeding pigs. It has the advantages of high feed conversion rate, good meat quality and shape, and high market recognition; 3) The company’s pigs expanded steadily, selling 870000 pigs in 21 years, with a year-on-year increase of 176%. Feed and breeding are promoting cost reduction and efficiency.
At present, the price of live pigs is at the bottom, breeding enterprises continue to lose money, and the trend of capacity removal is obvious. Affected by the African swine fever epidemic, the overall fluctuation of this round of pig cycle is relatively intense. In 2019, 544.19 million pigs were sold in China, a year-on-year decrease of 21.6%. Around November 2019, the price of pigs reached 41 yuan / kg, the highest level in history. After that, it fluctuated and adjusted at a high level in 2020. At the beginning of 2021, the price entered the downward channel. As of January 2022, the data of the Ministry of agriculture and rural areas showed that the number of fertile sows was 42.9 million, a month on month decrease of 0.9% and a year-on-year decrease of 3.7%. The production capacity was further reduced. However, there were structural adjustments in the process of capacity removal, and the psy and other indicators of fertile sows were gradually improved. It still takes time to clear. It is expected that the price inflection point will appear at the end of 22 or the first half of 23. As of March 14, the national pig price was about 12.2 yuan / kg, which is still in the loss range. The cash flow of breeding enterprises has become a necessary condition for passing the cold winter of the cycle. The company’s total current assets in 2021 were 2.12 billion yuan, accounting for 35.2% of the total assets and 44.7% of the asset liability ratio, which are better than the industry average level, which is conducive to the company’s reasonable control of production capacity.
The company cooperates with international excellent pig breeding enterprises to forge the advantages of high-quality and efficient Siyin breeding pigs. In September 2016, the company signed the management and technical service contract with Pipestone, which is valid for 7 years to help the company introduce a complete set of breeding concept and production technology system from site selection to the details of pig production and operation process; In September 2017, the company signed the general agreement on closed propagation with pig improvement company pic for a period of 7.5 years. The company purchased boars and sows from pic for Zeng Zu generation, and bred the first four Yin pigs on the basis of them. They do not carry common pig infectious viruses such as blue ear, pseudorabies Ge, PED (porcine epidemic diarrhea), African swine fever, and the prevalence rate is low in the subsequent breeding process. The offspring have the characteristics of fast production speed, high feed conversion rate, good meat quality, strong adaptability and strong reproductive performance. In addition to the biological level, the company also pays attention to epidemic prevention safety at the level of hardware facilities. The company improves and upgrades the old pig farms with the latest epidemic prevention standards as reference. During the construction of the new plant, the pig farm site selection adopts the thousand point scoring system, the pig herd detection and purification system is adopted in the breeding area, and a three-level decontamination and isolation epidemic prevention system is established.
Grasp the advantages of integrated operation, orderly expansion of production capacity, and coordinated and positive development of feed and breeding. The company started large-scale pig breeding in 2007. In 20 years, 315000 pigs were sold, and 870000 pigs were sold in 21 years, with a year-on-year increase of 176.2%. The pig sector achieved a sales revenue of 1.79 billion yuan. The company adjusts the sales rhythm according to the market situation, increases the sales volume when the price of live pigs is high, and turns the sales target to piglets and breeding pigs with higher gross profit margin when the demand for piglets and breeding pigs is strong. At present, the company has laid out 11 pig breeding bases and built 19 standardized pig breeding farms, which helps to quickly respond to the reversal of the cycle and expand production. The feed sector and livestock and poultry breeding business give positive feedback to each other to form synergy. The feed nutrition department adjusts the formula in time, which helps the farm increase production and efficiency. At the same time, it reduces the risk of external feed procurement, effectively improves the efficiency of cost control, and further reduces the feed meat ratio. From the perspective of feed business, the process of constantly adjusting the formula helps to improve competitiveness. The two promote each other, form a benign interaction and enhance the profitability of the company.
Profit forecast and investment suggestions. It is estimated that the EPS from 2022 to 2024 will be -0.44 yuan, 3.10 yuan and 5.50 yuan respectively, and the corresponding dynamic PE from 23 to 24 years will be 7 times and 4 times respectively. Referring to the average PE of the same industry in 2023, considering the factors such as the company’s high pig breeding efficiency and wide growth space for future capacity expansion, the appropriate premium will be given to the company’s 12 times PE in 2023, the first coverage, the “buy” rating and the target price of 37.2 yuan.
Risk tip: the company’s capacity expansion is less than expected; There is an epidemic at the breeding end; Product sales are not as expected.
