\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 975 Hunan New Wellful Co.Ltd(600975) )
Key investment points
Start planning for major asset restructuring
On April 15, 2022, Hunan New Wellful Co.Ltd(600975) issued the suspension notice of major asset restructuring: the company is planning major asset restructuring and is expected to purchase by issuing shares and paying cash, including:
(1) 100% equity of Hunan Tianxin Seed Industry Co., Ltd. and 2 million yuan of state-owned exclusive capital reserve;
(2) 48.20% equity of Yuanjiang Tianxin Seed Industry Co., Ltd;
(3) 49.00% equity of Jingzhou Xiangmu Seed Industry Co., Ltd;
(4) 39.00% equity of Hengdong Tianxin Seed Industry Co., Ltd;
(5) 46.70% equity of Linxiang Tianxin Seed Industry Co., Ltd;
(6) 100% equity of Hunan Tianhan Animal Husbandry Development Co., Ltd;
(7) 100% equity of Chenzhou xiasitian Agricultural Technology Co., Ltd;
(8) 100% equity of Xinhua Jiuyang Agricultural Development Co., Ltd;
(9) 100% equity of Hengdong Xinbang Animal Husbandry Development Co., Ltd;
(10) 100% equity of Hunan tianqin Animal Husbandry Development Co., Ltd
(11) 100% equity of Longshan Tianhan Animal Husbandry Development Co., Ltd. and raise supporting funds.
Asset injection is expected to bring more than expected expansion
Tianxin seed industry, Yuanjiang Tianxin, Jingzhou Xiangmu, Hengdong Tianxin, Linxiang Tianxin and other companies, the subject of this transaction, are mainly engaged in pig breeding, pig breeding and sales, livestock and poultry breeding technical services, road goods and other businesses. We believe that after the injection of new assets, the company’s pig breeding and sales business is expected to expand beyond expectations. Among them, Tianxin seed industry is a subsidiary of Hunan Modern Agricultural Industry Holding Group Co., Ltd. its business has the problem of horizontal competition with Hunan New Wellful Co.Ltd(600975) and Hunan New Wellful Co.Ltd(600975) planned to acquire Tianxin seed industry in 2017, but its performance ended due to periodic fluctuations. Tianxin seed industry is the earliest large-scale and intensive professional breeding company in China, one of China’s large breeding pig production enterprises and the national pig core breeding farm. It is conservatively estimated that Tianxin seed industry has 60000 basic sows in stock and an annual production capacity of 1.5 million (including 200000 breeding pigs). If the transaction goes smoothly and Tianxin seed industry is successfully injected into Hunan New Wellful Co.Ltd(600975) body, Hunan New Wellful Co.Ltd(600975) pig breeding and sales business is expected to further develop and grow. If we consider the asset injection of trading parties such as 7200 basic sows in Yuanjiang Tianxin, 4800 basic sows in Jingzhou Xiangmu and 6000 basic sows in Hengdong Tianxin, the number of pigs sold by the company is expected to maintain a high growth in the next few years. In the future, Hunan Modern Agricultural Industry Holding Group is expected to form a breeding group enterprise with an annual output of 8-10 million and obvious regional competitive advantage.
Profit forecast and investment suggestions
(1) profit forecast:
The company’s pig breeding business is the main source of revenue and gross profit, and it is also the key development direction of the company in the next few years. It is expected that after the asset injection, the company’s pig sales volume will increase more than expected in 2022 / 23.
① prediction of slaughter volume: the company will slaughter about 440000 pigs in 2021, and most of them are fattening pigs. By the end of 2021, the company can breed 60000 sows and 30000 reserve sows. Considering that Tianxin seed industry and other trading parties have contributed more than 70000 basic sows after asset injection in 2022, Psy is calculated at 20, plus discount and dead Amoy. It is estimated that the number of sows to be sold in 2022 will reach 2.2 million. In the future, the company aims to become the largest pig breeding enterprise in Hunan during the 14th Five Year Plan period. At present, the production capacity is in continuous expansion. Considering the upward cycle of pig price in 2023, the company may further increase the sow reserve, and it is expected that the number of sows will reach 3.5 million in 2023. It is estimated that the sales volume from 2021 to 2023 will be 44 / 220 / 3.5 million respectively.
② average selling price and weight prediction: the price of live pigs in China will accelerate to decline in 2021, and the average selling price of live pigs is expected to be about 16 yuan / kg. In the first half of 2022, the supply of pigs increased while the consumption was weak, and the pig price remained at the bottom. In the second half of the year, the supply of pigs in China should decrease month on month, and the pig price may rise near the cost line. It is estimated that the average price of pigs in 2022 will be 14-15 yuan / kg. In 2023, with the continuous deregulation of production capacity from 2021 to 2022, the supply of pigs will tighten, and the pig price may usher in an upward cycle. The average price of pigs in the whole year is expected to be 19-20 yuan / kg. It is estimated that the average selling price of commercial pigs of the company from 2021 to 2023 will be 16.00/14.50/19.50 yuan / kg respectively, and the slaughter weight of live pigs will be 120 / 118 / 118 kg respectively.
③ marketing cost forecast: the average full cost of the company in 2021 is about 18.5 yuan / kg, of which the full cost of the best pig farm reaches 15 yuan / kg, and there is still room for improvement in the future. The company will continuously reduce the total cost by improving the capacity utilization rate, adjusting the sow structure, eliminating the three yuan, improving efficiency, improving fine management, reducing feed waste, strengthening informatization, forming daily, weekly and monthly analysis, etc. It is estimated that the full cost from 2021 to 2023 will be 18.5/16/15.2 yuan / kg respectively. To sum up, considering the company’s focus on the development and expansion of pig breeding business, plus slaughtering, refrigeration, fresh meat sales and other businesses, it is estimated that the company will achieve operating revenue of RMB 2.431 billion, 5.559 billion and 10.134 billion respectively from 2021 to 2023, with a year-on-year increase of – 10.74%, 128.65% and 82.32% respectively, and the gross profit margin is – 0.40%, – 3.78% and 21.88% respectively.
(2) investment suggestions:
The company is the first listed pig breeding enterprise in China. At present, it has developed into a whole industry chain business model focusing on pig industry, covering feed, raw material trade, breeding pigs, commercial pigs, slaughtering, cold chain, logistics, etc. In the cold winter of breeding, we may see more and more enterprises go bankrupt due to the rupture of cash flow. The company relies on Hunan SASAC and has natural guarantee in financial support. The background of state-owned enterprises provides a good margin of safety for investors, and the predictable asset injection provides the possibility for the company’s pig breeding business to expand beyond expectations. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be RMB -180 million, – 562 million and 1.592 billion respectively, with a year-on-year increase of – 163.84%, – 211.66% and 383.08% respectively; EPS is -0.28, -0.86 and 2.44 yuan / share respectively, and the corresponding PE is -37.90, -12.16 and 4.30x respectively. Considering the continuous strengthening of the pig cycle reversal and the expectation of the company’s asset injection, we are optimistic about the company’s long-term growth and maintain the “buy” rating.
Risk tips
(1) animal disease risk;
(2) risk of large fluctuation of pig price;
(3) price fluctuation risk of feed raw materials;
(4) food safety risks.
