Jiangxi Zhengbang Technology Co.Ltd(002157) recently released 2021 annual report shows that the company’s net profit loss attributable to shareholders of listed companies during the year was 18.819 billion yuan, a sharp year-on-year decrease of 427.62%
With the end of the last round of pork price rise in 2021, most of the 13 listed “pig enterprises” in China have faced losses in the past year. According to institutional research, the total loss of the industry exceeded 40 billion yuan. Because the pork market price is inversely linked to the cost, “one pig will lose one”, and enterprises with large pig slaughter volume will face greater losses when the industry goes down.
In recent years, Jiangxi Zhengbang Technology Co.Ltd(002157) ( Jiangxi Zhengbang Technology Co.Ltd(002157) . SZ), which has grown into the second largest pig market in China through rapid production expansion, is one of the huge losses in this round of “bottom building period of pig cycle” Jiangxi Zhengbang Technology Co.Ltd(002157) recently released 2021 annual report shows that the company’s net profit loss attributable to shareholders of listed companies during the year was 18.819 billion yuan, a year-on-year decrease of 427.62%, higher than the loss of 13.404 billion yuan of another huge loss pig enterprise Wens Foodstuff Group Co.Ltd(300498) .
In the first quarter of this year, Jiangxi Zhengbang Technology Co.Ltd(002157) loss situation has not been reversed. According to the data of the first quarterly report, Jiangxi Zhengbang Technology Co.Ltd(002157) the net profit loss attributable to the shareholders of the listed company was 2.433 billion yuan.
The company said in its annual report that the company had a large loss during the reporting period, mainly due to the sharp decline in the sales price of pigs in the Chinese market compared with the same period last year. At the same time, due to the continuous rise in the price of feed raw materials, the company’s profit fell sharply year-on-year. The reasons announced by the company also include the company’s optimization of sow population structure, the sale of sows purchased at a high price in the early stage at a low price, the return of inefficient leased pig farms and the withdrawal of inventory falling prices.
It can be seen that Jiangxi Zhengbang Technology Co.Ltd(002157) this round of huge losses is mainly due to the decline of the pig cycle after the large-scale expansion. However, researchers from the investment times found that even in good years, compared with other peers, Jiangxi Zhengbang Technology Co.Ltd(002157) ‘s gross profit margin of pigs and feed products is also at a low level, which may be another reason for Jiangxi Zhengbang Technology Co.Ltd(002157) ‘s huge losses in the downward cycle.
The loss also made Jiangxi Zhengbang Technology Co.Ltd(002157) the asset liability ratio climb to an all-time high of 92.60% in 2021. But how long will the bottom of the pig cycle last, Jiangxi Zhengbang Technology Co.Ltd(002157) can and how can it survive this more violent cycle?
strategic adjustment from feed to pig breeding
Jiangxi Zhengbang Technology Co.Ltd(002157) was founded in 1996. It is a national key leading enterprise of agricultural industrialization focusing on feed production and sales, pig breeding and pig raising. In 2007, when it was first listed, the operating revenue of Jiangxi Zhengbang Technology Co.Ltd(002157) reached 1.649 billion yuan. By 2021, the operating revenue of the company was 47.670 billion yuan, and the scale of revenue increased by nearly 30 times.
The rapid growth of the scale may result from the strategic shift of Jiangxi Zhengbang Technology Co.Ltd(002157) from the main feed industry to pig breeding. In the year of listing in 2007, the company was still a feed company, with feed revenue accounting for 96.21% of the total revenue and pigs accounting for only 3.79%. In 2010, Jiangxi Zhengbang Technology Co.Ltd(002157) began strategic transformation in order to break the situation of “increasing income without increasing profit” caused by fierce competition in the feed industry. By 2015, the proportion of feed income in revenue will be reduced to 84.06%, and the proportion of pig income will rise to 9.20%. According to the data of 2021 annual report, the proportion of feed revenue in revenue of the company decreased to 34.57%, and the proportion of breeding increased to 60.74%.
The above transformation made Jiangxi Zhengbang Technology Co.Ltd(002157) in 2015, when the third round of China’s pig cycle went up, the gross profit margin and net profit margin rose, and thus got rid of the continuous low gross profit margin and net profit margin in the previous single feed business. In 2014, Jiangxi Zhengbang Technology Co.Ltd(002157) gross profit margin and net profit margin were 6.50% and 0.54% respectively. In 2015, the pork market rose. The increase of Jiangxi Zhengbang Technology Co.Ltd(002157) pig breeding share raised its gross profit margin and net profit margin to 9.28% and 2.05% respectively.
Since then, with the expansion of pig breeding business and surpassing feed as the first main business, the gross profit margin and net profit margin of Jiangxi Zhengbang Technology Co.Ltd(002157) fluctuated with the pig cycle. However, except for individual years, the above two indicators exceeded the previous data when feed was used as a single business.
This transformation has also brought the company’s net profit scale to a new level. According to the data of the annual report, Jiangxi Zhengbang Technology Co.Ltd(002157) net profit attributable to the parent company has exceeded 100 million yuan since 2015, reaching 311 million yuan. In 2019, the net profit attributable to the parent company reached 1.647 billion yuan, and the net profit increased significantly to 5.744 billion yuan in 2020.
The researcher of investment Times noted that 2020 is a special year for Jiangxi Zhengbang Technology Co.Ltd(002157) for the company. In that year, the company realized the ultra rapid growth of doubling its revenue and 3.49 times its net profit, but it also foreshadowed the huge loss in 2021. According to the annual pork price data of 2020 released by the National Bureau of statistics, the annual pork price in 2020 increased by 49.7% year-on-year, and the slaughter price of pigs also reached a high of more than 35 yuan per kilogram.
The pig industry has become a hot industry of annual capital concern. Different giants such as jd.com, Alibaba, Vanke and country garden have tried to enter across the border. As the top Jiangxi Zhengbang Technology Co.Ltd(002157) , the company has set “four strategies” within the company: grabbing sows, piglets, breeding indicators and talents. Finally, the company achieved a slaughter volume of 9.5597 million pigs in 2020, with a year-on-year increase of 65.28%, ranking second in the industry.
However, the pork “diving” after the Spring Festival in 2021 caught Jiangxi Zhengbang Technology Co.Ltd(002157) a little unprepared just sitting in the second place of pig slaughter.
huge deficit in 2021
Jiangxi Zhengbang Technology Co.Ltd(002157) in the 2021 annual report, explaining the reasons for the decline in performance, said that due to the release of the company’s pig production capacity in 2021, the annual pig marketing scale remained in the forefront of A-share pig breeding listed companies. However, due to the shock and decline of China’s pig market price, the rise of the company’s sales volume and the decline of sales price had a great impact on the performance.
In addition, the company has a single industry, and its operating revenue and profit contribution mainly come from pig breeding business. Therefore, compared with diversified business, the company is more strongly affected by pig cycle.
According to the data of Jiangxi Zhengbang Technology Co.Ltd(002157) annual report, the breeding business of the company achieved 28.955 billion yuan in 2021, with a gross profit margin of – 45.88% and a gross profit of – 13.285 billion yuan. According to the 14.93 million units sold in 2021 announced by Jiangxi Zhengbang Technology Co.Ltd(002157) announcement, the loss of each unit is about 884.13 yuan.
According to the first quarterly report of this year, Jiangxi Zhengbang Technology Co.Ltd(002157) losses continue. According to the data, Jiangxi Zhengbang Technology Co.Ltd(002157) achieved an operating revenue of 6.490 billion yuan in the first quarter, but the net profit attributable to the parent company was 2.433 billion yuan, up from 212 million yuan in the same period last year.
At the performance presentation meeting held on May 10 this year, Jiangxi Zhengbang Technology Co.Ltd(002157) chairman Lin Feng said that the full cost of fattening in the first quarter of the company was about 20 yuan / kg, and the breeding cost excluding four expenses was 16.45 yuan / kg. The April sales briefing released by Jiangxi Zhengbang Technology Co.Ltd(002157) shows that the sales price is 12.43 yuan / kg.
The bottom of pig prices and the rise of feed raw materials have brought losses to the whole pig industry, but why is Jiangxi Zhengbang Technology Co.Ltd(002157) loss so large? The researcher of investment times found that in addition to the breeding scale, the year-on-year rise of management expenses and R & D investment is also one of the reasons for its huge losses.
In 2020, when the pork price is still good, Jiangxi Zhengbang Technology Co.Ltd(002157) under the guidance of the thought of “grabbing talents”, the number of employees increased by more than 20000. In the management expenses of that year, the employee salary expenses increased by 900 million yuan, and the annual management expenses were 2.781 billion yuan. The increased personnel in 2020 will continue to increase the company’s management expenses by 30.74% to 3.636 billion yuan in 2021.
In its annual report, the company said that the increase in management expenses in Jiangxi Zhengbang Technology Co.Ltd(002157) 2021 was mainly due to the expansion of the company’s scale and the significant increase in the number of employees in 2020. The number of employees decreased from the second half of 2021. At the same time, due to the decline of pig prices below the cost line in the second half of 2021, the production capacity was reduced, and the corresponding expenses accrued from some discontinued pig farms were included in the management expenses.
At the same time, although the performance of Jiangxi Zhengbang Technology Co.Ltd(002157) 2021 shrank significantly, the company’s investment in R & D continued to increase, increasing by 3.47% to 546 million yuan from 528 million yuan in 2020. Compared with Muyuan Foods Co.Ltd(002714) , Beijing Dabeinong Technology Group Co.Ltd(002385) and Wens Foodstuff Group Co.Ltd(300498) in the same industry, the R & D investment of Jiangxi Zhengbang Technology Co.Ltd(002157) is not low. In 2020, for example, Muyuan Foods Co.Ltd(002714) and Beijing Dabeinong Technology Group Co.Ltd(002385) R & D investment will be 412 million yuan and 570 million yuan respectively.
Jiangxi Zhengbang Technology Co.Ltd(002157) said in the annual report that in terms of R & D investment, the company continued to introduce academicians, doctors, postgraduates and other high-end talents to lead the R & D and innovation of breeding technology, improve the performance of breeding pigs, and move forward the production capacity to intelligence, automation and digitization.
However, the above scientific research investment has not yet produced obvious results. In 2021, the gross profit margin of the company’s breeding and feed business was – 45.88% and 6.36% respectively. For example, comparing feed products with companies in the same industry, the gross profit margin of Jiangxi Zhengbang Technology Co.Ltd(002157) feed in 2021 is lower than that of most listed enterprises, lower than 13.19% of Beijing Dabeinong Technology Group Co.Ltd(002385) , 12.64% of Guangdong and 6.51% of New Hope Liuhe Co.Ltd(000876) .
Compared with peers, the profit margin advantage of Jiangxi Zhengbang Technology Co.Ltd(002157) ‘s pig products is not obvious. In 2020, the gross profit margin of Jiangxi Zhengbang Technology Co.Ltd(002157) breeding was 27.42%, while the gross profit margin of Muyuan Foods Co.Ltd(002714) , Wens Foodstuff Group Co.Ltd(300498) , Beijing Dabeinong Technology Group Co.Ltd(002385) and New Hope Liuhe Co.Ltd(000876) pig products in the same period were 62.09%, 30.61%, 52.30% and 23.13% respectively.
The above data may show that even in the year when the pig price is good, Jiangxi Zhengbang Technology Co.Ltd(002157) the profit growth is mainly due to the growth of scale. This situation also causes Jiangxi Zhengbang Technology Co.Ltd(002157) to bear more pressure than companies with better gross profit margin of other products when the market is down.
Jiangxi Zhengbang Technology Co.Ltd(002157) 2021 main business income and gross profit margin
Data source: annual report of the company
where is the future
According to the data of the annual report, by the end of 2021, Jiangxi Zhengbang Technology Co.Ltd(002157) asset liability ratio was 92.60%, and the data at the end of last year was 58.56%, which is also the highest debt ratio of the company since listing. Its current ratio and quick ratio also decreased from 1.22 and 0.70 of last year to 0.48 and 0.25 of this year respectively.
In order to mitigate financial risks, Jiangxi Zhengbang Technology Co.Ltd(002157) began to sell assets in the second half of 2021, including the sale of eight feed subsidiaries in Southwest China to Beijing Dabeinong Technology Group Co.Ltd(002385) and the return of funds of 2 billion yuan to 2.5 billion yuan is expected. After the announcement of the transaction, Jiangxi Zhengbang Technology Co.Ltd(002157) in reply to the letter of concern from Shenzhen Stock Exchange, said that at present, the company’s fixed assets under construction are about 20 billion yuan, with a large scale and the initiative to deal with the bottom of the cycle of asset sales and equity transfer.
Jiangxi Zhengbang Technology Co.Ltd(002157) further stated that the company has completely stopped the new breeding farm project from the second half of 2021, and the fattening farm project will be completed by the agent in 2022.
Up to now, the monetary capital of the company is about 3.3 billion yuan, including nearly 900 million yuan of bank deposits, and the rest are Bill margin, letter of credit margin, etc.
Market news predicts that the current round of pig cycle will reach the bottom from April to May this year. However, in the medium and long term, the stock and marketing pressure at the supply level in China still exist. If there is no specific de capacity action, the pork price may continue to remain low under the market condition of oversupply. It is still unknown whether the gamblers who bet the most in this round of pig cycle can survive the long “bottom cycle”.
Jiangxi Zhengbang Technology Co.Ltd(002157) 2021 and 2020 asset liability ratio
Data source: annual report center
