Investment strategy:
The agriculture, forestry, animal husbandry and fishery sector achieved a total operating revenue of 1067.9 billion yuan in 2021, a year-on-year increase of + 16%; The net profit attributable to the parent company was – 33.2 billion yuan, a year-on-year increase of – 144%. In 2022, Q1 achieved a total operating revenue of 250.4 billion yuan, a year-on-year increase of + 0.3%; The net profit attributable to the parent company was – 14.2 billion yuan, a year-on-year increase of – 186.1%. Over the past decade, the revenue of agriculture, forestry, animal husbandry and fishery sector has increased steadily, and the profit has strong periodicity, which is greatly affected by the profit of pig breeding sector.
Pig breeding sector: the performance at the bottom of the cycle is under pressure, and the reversal of production capacity can be expected
At the end of the pig cycle, the profits of the industry were seriously damaged. In 2021, pig prices fell rapidly from a high level, dragging down the annual profit of the pig breeding sector to the lowest in nearly a decade, and the sector lost money for the first time in nearly a decade. According to the 2021 annual report, the total revenue of Shenwan pig breeding sector was 336 billion yuan, a year-on-year increase of + 10%; The net profit attributable to the parent company was – 39.6 billion yuan, a year-on-year increase of – 181%. In Q1 2022, the pig price remained low, the profits of pig breeding enterprises further declined, and the losses continued to deepen. The total revenue of the sector in the first quarter was 72.9 billion yuan, a year-on-year increase of – 14%; The net profit attributable to the parent company was – 15.6 billion yuan, a year-on-year increase of – 275%.
In 2021, among the major listed companies, only Muyuan Foods Co.Ltd(002714) due to the cost advantage and the additional income from the sale of breeding pigs and piglets, the annual net profit was 6.9 billion yuan, and other enterprises suffered losses to varying degrees. In Q1 2022, the whole industry suffered deep losses, of which Muyuan Foods Co.Ltd(002714) listed the largest amount and the total amount of losses was the highest. Enterprise roe generally fell sharply in 2021 and continued to suffer losses in Q1 in 2022.
The cash flow of the industry is tight and the pace of expansion slows down. In 2021, the net cash inflow from operating activities of the industry decreased significantly to 16.2 billion yuan, a year-on-year increase of – 65%. In 2022, Q1 pig price was depressed, and the net outflow of business activities of the whole industry was 3.9 billion yuan. Heavy financial pressure forced enterprises to slow down the pace of expansion. The capital expenditure of pig breeding sector in Q1 in 2022 was significantly reduced to 12.8 billion yuan, down – 55% from the same period last year. Industry leader Muyuan Foods Co.Ltd(002714) q1 capital expenditure is 5.9 billion yuan, mainly to pay for early-stage projects, and the construction of new projects slows down.
The whole industry has opened the channel of capacity removal since mid-2021. At the end of 2021, the total productive biological assets of Shenwan pig breeding sector were 25.4 billion yuan, down – 37% from the same period in 2020. In the first quarter, the production capacity continued to be reduced to 24.8 billion yuan, down – 3% from the end of 2021. In March 2022, the number of fertile sows decreased to 41.85 million, and the removal rate from high production capacity reached 8.3%. In late April, pig prices have shown obvious signs of recovery, but they are still low. The production capacity will continue to be deconstructed. Pig prices are about to enter the upward channel, and the fundamentals of pig breeding sector can be improved.
Broiler breeding: in 2021, the broiler breeding sector achieved a total revenue of 36.5 billion yuan, a year-on-year increase of + 17%; The net profit attributable to the parent company was 300 million yuan, a year-on-year increase of – 89%. In Q1 2022, the total revenue of broiler breeding sector was 12.1 billion yuan, a year-on-year increase of + 3%; The net profit attributable to the parent company was – 800 million yuan, a year-on-year increase of – 211%. The excess supply of white feather chicken in the industry in 2021, combined with the decline of pig price, led to the continuous downturn of chicken price and the overall loss of broiler breeding industry chain.
Seed industry: in 2021, the seed sector of Shenwan tertiary industry achieved a total revenue of 14.8 billion yuan, a year-on-year increase of + 12%; The net profit attributable to the parent company was 674 million yuan, a year-on-year increase of + 70%. In 2022, the total revenue of Q1 seed sector was 3.5 billion yuan. Year on year + 8%; The net profit attributable to the parent company was 250 million yuan, a year-on-year increase of + 79%. Benefiting from the rising grain prices in the downstream, strong seed demand and the continuous introduction of favorable policies, the prosperity of the seed sector is expected to continue to rise.
Investment suggestion: the bottom of the pig cycle is the best time to configure the pig breeding sector. It is recommended that the pig breeding leader Muyuan Foods Co.Ltd(002714) , with cost advantage, and Wens Foodstuff Group Co.Ltd(300498) , with improved cost margin. Driven by policy support and market demand, the future prosperity of the seed industry can be expected. It is recommended that Shandong Denghai Seeds Co.Ltd(002041) , the leader of corn seed, Beijing Dabeinong Technology Group Co.Ltd(002385) , Yuan Longping High-Tech Agriculture Co.Ltd(000998) , Winall Hi-Tech Seed Co.Ltd(300087) , Winall Hi-Tech Seed Co.Ltd(300087) .
Risk tips: geopolitical risk, the risk that the reversal of pig cycle is less than expected, and the risk of animal disease
