Huatong Meat(SZ:002840) Guohai Securities·2024-02-20 16:00Investment Rating - The report assigns a "Buy" rating for the company, indicating a positive outlook for investment [36]. Core Views - The company, Huadong Co., is a leading player in the livestock slaughtering industry in Zhejiang Province, with a strong focus on expanding its pig farming operations. The company has shown significant growth in revenue and production capacity, particularly in the pig farming sector, which is expected to continue its upward trajectory [31][41]. Summary by Sections Financial Performance - The company's revenue has grown from 4.715 billion yuan in 2017 to 9.452 billion yuan in 2022, with a CAGR of 14.92%. However, in the first three quarters of 2023, revenue decreased by 3.98% year-on-year to 6.164 billion yuan [26][49]. - The gross profit margin has shown fluctuations, with a decrease to 0.26% and a net profit margin of -6.43% in the first three quarters of 2023, reflecting the impact of the current pig cycle [51][77]. Pig Farming Business - The company has rapidly expanded its pig farming operations, with slaughter volumes increasing from 137,000 heads in 2021 to 1.2048 million heads in 2022, and an expected 2.3027 million heads in 2023. The company aims to reach 5 million heads by 2024 [40][96]. - The cost of production has been optimized, decreasing from 18 yuan/kg in 2022 to 16.5 yuan/kg in Q3 2023 [40]. Slaughtering and Meat Processing - The slaughtering and meat processing business remains the company's traditional strength, contributing over 90% of revenue. In 2023, this segment generated approximately 3.78 billion yuan [27][82]. - The company operates 24 slaughterhouses, with an annual slaughter capacity of 14 million heads, maintaining its leading position in Zhejiang [27]. Market Dynamics - The pig farming industry is currently experiencing a prolonged cycle of low prices, with the supply of pigs remaining high. The report suggests that the industry may see accelerated capacity reduction in the near future [62][87]. - The concentration of the pig farming industry has been increasing, with the top ten companies' market share rising from 8.27% in 2018 to 22.5% in 2023, indicating a shift towards larger, more efficient operations [87]. Future Outlook - The company is expected to benefit from a recovery in pig prices and an increase in production capacity, with projected revenues of 10.18 billion yuan in 2023, 14.31 billion yuan in 2024, and 19.169 billion yuan in 2025 [41]. - The report anticipates a return to profitability in 2024, with net profits projected at 2.83 billion yuan and 19.57 billion yuan in 2025, reflecting a significant improvement in the company's financial health [41].