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Shengnong Development (002299): Benefit from White Feather Chicken Price Rise 2019H1 Performance Exceeds Expectations

05/16/2020

Shengnong Development (002299): Benefit from White Feather Chicken Price Rise 2019H1 Performance Exceeds Expectations

Event: On July 9, 2019, the company issued a revised half-year 2019 forecast notice announcement: the company’s net profit attributable to motherhood in 2019H1 was 16.

5 billion?
16.

600 million, an annual increase of 392.

53%?
395.

51%.

List the company’s first quarterly report to disclose the median expected profit range, up 16.

1%.

The core point of view benefited from the rising prices of white chickens, and the 19H1 performance exceeded expectations.

The company is the leader of the whole industry chain of white feather chickens. According to the company’s income structure in 2018, chicken sales accounted for 70%. Broiler and feed prices are the key factors affecting profitability.

2019H1 benefits White chicken prices are strong, overlapping costs are stable, and profitability is greatly improved: According to Boya and Hexun statistics, the average price of white chicken in 2019H1 main producing areas is about 9.

61 yuan / kg, the price rose 24 in advance.

2%; related statistics over the same period show that the average price of soybean meal fell 11 year-on-year.

0%, corn prices rose by 1.

5%, which is slightly flat overall, with less pressure on the cost of breeding.

The price of chicken meat fluctuated in a short period of time, and it remained worrying in the medium term.

At present, the price of white feather broilers has been in 2011, and its historical high range has been relatively limited since then. It has recently shown a significant turbulence. The main difference in the current market lies in the high sustainability of chicken prices.

We believe that the weakening of chicken price shocks in 2019H2 is weaker than the response; the decline of chicken prices in the medium term is unavoidable: 1) the existing looseness on the supply side.

In 2018, the introduction amount of chicken ancestors’ upstream ancestors has rebounded marginally to 74.

540,000 sets, gradually approaching the equilibrium level of the industry under conventional demand, and margins have become loose; 2) Affected by African swine fever indirectly, alternative consumption of chicken is supported.

The outbreak of swine fever in Africa in 2018 has tightened the supply of live pigs. By the end of the five months, the sow herd inventory has not improved, and the reduction in pork supply has resulted in an increase in alternative demand for chickens to provide support for demand.The cycle is short, the industry’s production capacity spontaneously adjusts quickly, and the decline in the medium term is unavoidable.

White feather chickens can be slaughtered in 42 days and grow faster. Considering the ancestor-parent-commercial breeding cycle and incubation period, the time span from the introduction of ancestors to the commercial generation is about 15-16 months.Falling prices buried hidden worries.

The whole industry chain layout has strong ability to resist the cycle change of chicken price.

The company acquired Shengnong Food in 2017, and announced the establishment of a breeding company in 2019.The company’s industrial chain is further extended upstream and downstream, which can reduce dependence on upstream chickens and use the food processing business to iron out the impact of the profit cycle and promote the company’s profit stabilityIt is beneficial to the company’s assessment and improvement.

Earnings forecast and rating: Considering that the chicken price 北京男士会所 boom has surpassed expectations since 2019, the company’s profit forecast is raised, and the company’s EPS for 2019-2021 is expected to be 2.

14 yuan, 1.

81 yuan and 1.

72 yuan, currently corresponding to 2019-2021 price-earnings ratios of 12 respectively.

2 times, 14.

4 times and 15.

2 times, maintaining the company’s “cautious recommendation” rating.

Risk reminder: disease risk; broiler price rise; corn, soybean meal and other feed prices rise; policy risk