China Animal Husbandry Industry Co.Ltd(600195)
Core view
The company is an old brand in China and is actively transforming around the requirements of the reform of state-owned enterprises. The company has been deeply engaged in the animal protection industry for more than 80 years. Its main business includes animal biological products, animal chemicals, feed and feed additives, and trade. As the only listed dynamic insurance business platform under the agricultural development of China, the company is actively responding to the relevant requirements of state-owned enterprise reform in recent years and promoting internal optimization and upgrading. We believe that 2022 is the last year of the “three-year action for the reform of state-owned enterprises”. Focusing on many objectives and requirements, such as consolidating the dominant position, giving play to the leading role of innovation and industry, the company’s market-oriented reform process is expected to be further accelerated, and its innovation and upgrading in governance mechanism and core business deserve attention, The relevant achievements will benefit the development of the company in both the short and long term, and are expected to be transformed into performance improvement.
The large-scale breeding industry has strengthened the marketization, and the animal protection industry has ushered in a golden growth period. The large-scale process of the breeding industry is accelerating, and the average epidemic prevention expenditure of large-scale farmers is significantly higher than that of free range farmers. It is expected to drive the continuous expansion of the veterinary vaccine industry in the future. At the same time, the head animal protection enterprises are expected to rely on their advantages in R & D, products and channels to better meet the needs of large-scale breeding enterprises, and the market share of animal protection is expected to be further concentrated. In addition, the marketization of strong immunization will be further accelerated. It is expected that the national government will cancel the political adoption of strong immunization vaccine in 2025. At that time, not only the whole strong immunization vaccine industry may benefit from the increase of the proportion of vaccine in the market, but also the advantages of leading enterprises in R & D, products and channels may be further highlighted, and the market concentration is expected to be improved.
The market share of the company’s political seedling collection is leading, and the market-oriented transformation is advancing steadily. In the biological products sector, the number of veterinary vaccines issued by the company ranks in the forefront of the industry, and has established a leading position in the field of strong immune vaccine administration and procurement. Driven by the large-scale breeding and the market-oriented trend of compulsory immunization vaccine, the company is actively making market-oriented strategic adjustment in recent years, steadily promoting the large-scale single product strategy and committed to developing group customers. At present, the proportion of sales of political collection vaccine is decreasing, and the advantageous new products such as OA bivalent vaccine of pig continue to increase, and has established a leading position in the subdivided field. In the veterinary chemical medicine sector, the company is actively adjusting its product structure by relying on its R & D and product advantages, with obvious improvement in business scale and profitability. At the same time, positive progress has been made in overseas expansion, and the future development prospect is worth looking forward to.
Profit forecast and Valuation: in the short term, the current cost pressure of breeding enterprises is high. Relying on brand and quality advantages, the company is expected to undertake part of the demand from import to domestic production. At the same time, we expect the pig cycle to reverse the bottom around 2023. At that time, the restoration of breeding end profits may drive the demand for upstream veterinary vaccines. In the long run, the company’s future performance is expected to enter a rapid growth channel thanks to the large-scale breeding, strong exemption marketization and its own operation upgrading. To sum up, we expect the net profit attributable to the parent company in 20222024 to be RMB 620 / 720 / 850 million (+ 19.9% / 16.8% / 18.7%) and EPS to be RMB 0.61/0.71/0.84 respectively. Through multi angle valuation, the reasonable valuation of the company is expected to be 15.7-17.1 yuan, with a premium of 25% – 35% relative to the current share price. It is covered for the first time and given a buy rating.
Risk tip: the risk that African swine fever will lead to a sharp decline in the sales of animal protection products; The risk that the progress of vaccine wholesale is less than expected; The risk that the large-scale process of downstream aquaculture is less than expected
