\u3000\u3 China Vanke Co.Ltd(000002) 1 Shenzhen Kaifa Technology Co.Ltd(000021) 00)
Core view
In 2021 and 2022q1, the revenue increased steadily, and the performance was under pressure in the short term. In 2021, the company achieved a revenue of 15.744 billion yuan, a year-on-year increase of + 31.35%, and a net profit loss attributable to the parent company of 686 million yuan, a year-on-year decrease of – 139.87%; In 2022q1, the company achieved a revenue of RMB 3.392 billion, a year-on-year increase of + 1.58%, and a net profit loss attributable to the parent company of RMB 70 million, a year-on-year decrease of – 123.12%. Affected by the bottom of the pig cycle and the optimization of the company’s production capacity, the company’s profit is under obvious pressure in the short term, but it belongs to the normal profit fluctuation at the bottom of the cycle, and the decline of the company’s net profit attributable to the parent is better than that of its peers.
The rapid growth of pig breeding business, the superposition of regional advantages and integration advantages have created a cost moat. In the pig breeding sector, the company sold 1.603 million pigs in 2021, a year-on-year increase of + 19.2%, of which 1.1547 million were self bred and 448600 were fattened by purchased piglets. In the slaughtering and meat products sector, the annual slaughtering volume of the company reached 920000 in 2021. In the post cycle sector, in 2021, the company’s feed sales reached 2.6179 million tons, with a year-on-year increase of + 37.07%. The company’s production capacity is mainly located in Northwest China. By investing in Xinjiang Huitong, the company has core corn collection and storage resources, and the cost advantage of feed raw materials is expected to continue in the future. In addition, the company adopts the “settlement type” whole industry chain development mode, improves the layout of original breeding pigs – three-level breeding – fattening, and supports feed and slaughtering processing to form a complete industry chain in each region, so as to achieve the best effect in terms of management, production scheduling and comprehensive efficiency. With the synergy of upstream, middle and downstream and the advantages of epidemic prevention and control brought by the layout of Northwest China, the company has created a cost moat. It is expected that the unit cost is expected to further decline in the future with the expansion of production capacity and the improvement of utilization rate.
Business expansion will bring short-term rise in expenses during the period, and the management and operation will continue to be optimized. In 2021, the gross profit margin of the company’s sales decreased by 21.22pct to 9.77%, and the net profit margin of sales decreased by 19.2pct to – 4.31%. On the one hand, the profitability of pig breeding, slaughtering and processing and meat products sales fell sharply due to the fluctuation of pork price; On the other hand, due to the high price of corn in 2021, the gross profit margin of the company’s grain collection and storage sector fell sharply by 12.27pct to 8.63%. In addition, the gross profit margin of the company’s feed sector fell slightly by 0.78pct to 13.35%, but thanks to the location advantages and raw material cost advantages of Xinjiang, the gross profit margin of the feed sector is still much higher than that of comparable companies in the industry. In 2021, the sales / management / financial expense ratio was 15.84% / 25.67% / 5.77% respectively, with a year-on-year ratio of – 24.07% / – 5.10% and + 7.25%. The expansion of breeding scale has led to a significant increase in the company’s financial expenses. However, the company continues to improve the organization and management efficiency through executive shareholding, incentive fund and employee shareholding, which is expected to fully mobilize the team’s enthusiasm from top to bottom, and the cost is expected to continue to improve at the bottom of the cycle. It is optimistic about the company’s business development.
Risk tips: epidemic risk, risk of sharp fluctuations in raw material prices, and risk of less than expected capacity expansion.
Investment suggestion: for the first time, give a “buy” rating. The company is a rising star in pig breeding. It has completed the layout of the “settlement” whole industrial chain. In the future, with the expansion of self breeding capacity and the improvement of capacity utilization, the cost is expected to be further reduced. It is estimated that the net profit of the company from 2022 to 2024 will be -208/14.24/3.013 billion yuan respectively, and the corresponding EPS will be -0.15/1.05/2.23 yuan respectively.
