TECON(SZ:002100) Shenwan Hongyuan Securities·2025-12-17 12:14Investment Rating - The report initiates coverage with a "Buy" rating for the company [1][7]. Core Views - The company is a key player in the agricultural and animal husbandry industry in Xinjiang, with a comprehensive business model covering feed production, animal health, pig farming, and protein oil processing. It ranks among the top 20 in pig farming and feed production in China [4][17]. - Despite a downturn in the pig farming industry, the company managed to achieve a revenue of 13.61 billion yuan in the first three quarters of 2025, reflecting a year-on-year growth of 4%, and a net profit of 412 million yuan [4][24]. - The report emphasizes the dual catalysts of fundamental and policy factors driving the pig farming sector, suggesting a left-side investment opportunity as the industry undergoes capacity adjustments [6][32]. Summary by Sections 1. Company Overview - The company is a state-owned enterprise under the Xinjiang Production and Construction Corps, established in 1993, and has expanded its operations to include various segments of the agricultural industry [17][18]. - It has a strong market position, being one of the eight designated producers of foot-and-mouth disease vaccines in China [4][17]. 2. Pig Farming Sector - The report notes that the pig farming sector is experiencing a decline in profitability, with the average price of pigs dropping from 15-16 yuan/kg at the beginning of 2025 to around 11-12 yuan/kg by December 2025 [32][39]. - The company is expected to face further losses in the coming quarters due to ongoing supply pressures and market conditions [41][42]. 3. Business Growth and Cost Optimization - The company is focusing on both internal growth through cost optimization and external growth via acquisitions, such as the recent purchase of Qiangdu Livestock [6][55]. - The report highlights that the company’s pig output has been steadily increasing, with a projected output of 302.85 million pigs in 2024, reflecting a year-on-year growth of 7.6% [56][60]. 4. Financial Projections and Valuation - The company is projected to achieve revenues of 17.50 billion yuan in 2025, with a net profit of 660 million yuan, and further growth expected in subsequent years [5][7]. - The report estimates a target market value of 13.68 billion yuan, indicating a potential upside of approximately 38.3% from the current market capitalization [7][29]. 5. Industry Dynamics - The report discusses the broader industry context, noting that the current cycle of capacity reduction in pig farming is expected to be more pronounced than in previous years, which may lead to a stabilization of prices in the future [9][47]. - The company’s strategic positioning and operational efficiencies are expected to enhance its competitive edge in a challenging market environment [9][55].