Shennong Group(SH:605296) EBSCN·2024-03-07 16:00Investment Rating - The report gives a "Buy" rating for the company, with a target price of 39.20 CNY based on a 10x PE for 2025 [2][3]. Core Insights - The company is positioned as an integrated player in the pig farming industry, with excellent cost control and a robust disease prevention system. The report anticipates significant growth in performance as the industry cycle reverses [2][9]. - The report forecasts the company's net profit for 2023-2025 to be -360 million, 440 million, and 2.06 billion CNY respectively, with corresponding EPS of -0.69, 0.85, and 3.92 CNY [2][9]. Summary by Sections Industry Overview - The pig farming industry is experiencing accelerated capacity reduction, with the number of breeding sows expected to drop to 40.67 million by January 2024, a month-on-month decrease of 1.8%. This trend is driven by insufficient replenishment of breeding sows and a continued weak supply-demand dynamic, leading to cash flow pressures [1]. Financial Performance - The company achieved a revenue of 3.304 billion CNY in 2022, a year-on-year increase of 18.9%, and 2.869 billion CNY in the first three quarters of 2023, reflecting a 38.5% year-on-year growth. The revenue from the breeding segment has significantly increased, reaching 53% of total revenue in 2022 [52]. Production Capacity and Expansion - The company plans to increase its pig output to 2.5 million and 3.5 million heads in 2024 and 2025 respectively, with a current output of 1.5204 million heads in 2023, a 42.11% increase year-on-year [72]. - The company is actively expanding its operations outside Yunnan to optimize raw material procurement and reduce costs, targeting a reduction of approximately 1 CNY per kilogram in total costs by 2024 [34][72]. Cost Control and Efficiency - The company maintains a strong focus on cost control, achieving a return on equity (ROE) that has consistently been among the industry leaders. Despite high costs in the breeding sector, the company has minimized losses and maintained profitability [33][72]. - The company has established a comprehensive biosecurity system to mitigate disease risks, which is crucial for maintaining production efficiency and cost-effectiveness [36][65]. Market Dynamics - The report highlights that the demand for pork is expected to increase in the second half of 2024, coinciding with seasonal stocking for summer and winter, which may lead to a supply-demand gap and a potential turning point for the industry [1][88].