Focus on Core Business, Low Hog Prices Dented Profit
发布时间:2024-06-16 来源:华泰金融(HK)
Turned around in 2023; 1Q24 results dented by hog breeding losses
After finalizing transactions related to poultry and food processing businesses, New Hope Liuhe (NH) recorded a turnaround for full-year 2023. However, for 1Q24, the attributable NP was RMB-1.93bn, turning negative qoq and worsening yoy. We estimate 2024/2025/2026 attributable NP at RMB-510/+4,719/+4,555mn. Considering the company’s optimizing hog breeding indicators, we value the stock at 1.88x 2024E PB, above its peers’ average of 1.15x on Wind consensus, for our target price of RMB10.04. OVERWEIGHT.
Asset transactions completed; attributable NP picked up
Attributable NP for 2023 was RMB249mn, turning positive yoy, primarily due to RMB5.1-5.2bn of gains from the introduction of strategic investors and controlling rights transfer in the poultry and food deep processing segments. Net investment gains were RMB6.67bn 2023, up by around RMB5.05bn compared with 2022. Recurring attributable NP was RMB-4.61bn, worsening yoy, owing to deep losses from the breeding business due to low hog prices, while the feed/poultry/food businesses remained profitable. Following the divestment of the poultry and food businesses, the company is to focus on two main segments: hog farming and feed production, with a solid foundation for the feed business. It has ramped up efforts to raise hog farming operating efficiency, with pigs weaned per litter increasing to 10.8 (up by 0.4 yoy), PSY to 23.5 (up by 0.5 yoy), and weaning cost decreasing to RMB340 per pig (down by RMB60 yoy).
Loss in breeding dented 1Q24 results; financial position stable
For 1Q24, revenue was RMB23.9bn, down 29% yoy, potentially due to the company optimizing capacity in some breeding areas and differences in reporting methods. The attributable NP was RMB-1.93bn, worsening both yoy and qoq. At end-1Q24, productive biological assets were RMB4.28bn, down 40.9% yoy/15.9% qoq. The financial position remains relatively robust, with several financial institutions extending credit lines of over RMB100bn at end-2023 and an overall utilization ratio of about 70%, leaving considerable room for further withdrawals.
Target price of RMB10.04; OVERWEIGHT
Considering NH’s ongoing optimization of capacity mix and a potential slowdown in hog sales volume growth for 2024/2025, we project its attributable NP at RMB-510/ +4,719/+4,555mn for 2024/2025/2026, with BVPS at RMB5.34/6.38/7.38. Given the company’s optimizing hog breeding indicators, we value the stock at 1.88x 2024E PB, above its peers’ average of 1.15x on Wind consensus, for our target price of RMB10.04. OVERWEIGHT.
Risks: lower hog sales volume and hog prices than we expect; African swine fever resurgence; large-scale animal diseases; capacity expansion failing to meet market demand.