Expand while losing money! Wenshi shares in the first half of this year "pig and chicken losses": net profit loss of more than 4.6 billion yuan, the "largest loss" of the three major pig enterprises

Due to the market downturn and high breeding costs, as a leading pig breeder, Wen's (300498) report card in the first half of this year is still not good. During the reporting period, it recorded a net profit loss of more than 4.6 billion yuan, and a non-net profit loss of more than 5 billion yuan, ranking first among the three major A-share pig breeding enterprises.

What puzzled investors was that while the huge losses were made, Wen's shares continued to expand. Today, it is still difficult to predict when this cycle of low pig prices will end and when pig prices will completely recover in the context of the current high pig supply.

The loss in the first half of the year widened further

"Biggest loss" for the three major pig enterprises

After a net loss of more than 2.7 billion yuan in the first quarter of this year, Wen's shares suffered a net loss of more than 4.6 billion yuan in the first half of this year, further expanding year-on-year.

According to the 2023 semi-annual report of Wen's shares, during the reporting period, the revenue was 41.189 billion yuan, a year-on-year increase of 30.61%; Net profit attributable to owners was -4.689 billion yuan, compared with -3.524 billion yuan in the same period of the previous year, and non-net profit attributable to parents was -5.128 billion yuan, compared with -3.864 billion yuan in the same period of the previous year. It can be seen that in the first half of this year, Wen's shares increased revenue without increasing profits, and the loss further expanded year-on-year.

Wens said that during the reporting period, the pig industry and the yellow feather chicken industry were in a cycle trough, the pig and broiler market was sluggish, and the sales price of the company's pork and broiler chicken was lower than the comprehensive cost of breeding, resulting in losses in the two main breeding businesses, and the net profit attributable to shareholders of listed companies fell sharply year-on-year.

Specifically, during the reporting period, Wen's shares sold 11.7857 million pigs (including hairy pigs and fresh products), an increase of 47.21% year-on-year; The average sales price of hairy pigs was 14.58 yuan/kg, up 3.18% year-on-year; Sales revenue was 20.744 billion yuan, a year-on-year increase of 54.39%.

"Although the company's pig sales and sales revenue increased sharply year-on-year, but the pig market is sluggish, feed prices are high, and the epidemic disease still affects the pig industry production performance to a certain extent, even if the company's pig production performance improves month by month, the overall comprehensive cost of breeding is still higher than the sales price, resulting in a large loss of the company's pig industry during the reporting period."

Also, broiler aspect. During the reporting period, Wen's sold 553 million broiler chickens (including hairy chickens, fresh products and cooked food), an increase of 13.30% year-on-year; The average sales price of hairy chicken was 13.09 yuan/kg, down 5.69% year-on-year; Sales revenue was 15.756 billion yuan, a year-on-year increase of 11.40%.

"During the reporting period, the company's chicken business production continued to remain stable, the production performance remained at a historical high, and the comprehensive cost of breeding was well controlled, but due to the sluggish market conditions, the sales price of broiler chickens was lower than the cost of breeding, and the company's chicken business suffered a loss. The increase in broiler sales revenue was mainly due to the increase in sales. ”

It can be seen that in the first half of this year, due to the inversion of the sales price, that is, lower than the cost of breeding, during the period, for Wen's shares, the more pigs and chickens are sold, the greater the overall loss.

From the point of view of the national market, the pig side. According to data from the National Bureau of Statistics, in the first half of the year, 380 million pigs were slaughtered nationwide, a year-on-year increase of 2.6%, pork production was 30.32 million tons, a year-on-year increase of 3.2%, and the market supply was at a high level in recent years. In the first half of the year, 13 listed companies that had disclosed pig sales sold a cumulative total of 66.5405 million pigs, an increase of 11.02% year-on-year. In terms of consumption, pork consumption is in the off-season after the Spring Festival, and although consumption has increased compared with the same period last year, the increase is lower than market expectations, and price support is weak.

From the cost side, the above report shows that the pig grain price ratio adopts the ratio of the weekly pig exit price monitored by the National Development and Reform Commission to the average wholesale price of second-class corn in major wholesale markets across the country, and the pig grain ratio corresponding to the break-even point of pig production is about 7:1 according to the production cost data in recent years. During the reporting period, the pig-to-food ratio remained below 7:1, and pig farming generally lost money. The above report shows that according to the 2023 half-year performance forecast disclosed by the same industry, the performance of 9 pig breeding enterprises in Shenwan's secondary industry - breeding industry during the reporting period is expected to lose.

Although pig breeding enterprises generally have losses, from the semi-annual reports of the three major A-share pig breeding enterprises, Wenshi shares have the largest losses, followed by New Hope (000876) and Makihara shares (002714). However, it is worth noting that in sharp contrast to the further expansion of the loss of Wen's shares, the losses of New Hope and Makihara shares have narrowed significantly year-on-year.

Losing money while continuing to expand

Wait for the "pig price rise"?

Although the loss in the first half of this year further expanded year-on-year, it still did not stop the determination and action of Wen's shares to continue to expand.

At the same time as the disclosure of the half-year report, Wenshi also disclosed the "Proposal on the Company to Invest Part of the Funds Raised by Convertible Bonds in the Fundraising and Investment Project of Sun Company by Borrowing", stating that the board of directors has agreed that the company will invest part of the funds raised by convertible bonds in the form of borrowing to Sun Company Daoxian Wenshi Animal Husbandry Co., Ltd. (hereinafter referred to as "Daoxian Wen's") and Nanxiong Wenshi Ecological Breeding Co., Ltd. (hereinafter referred to as "Nanxiong Wen's"), respectively, for the implementation of the "Daoxian Wenshi Animal Husbandry Co., Ltd. Qiuba Pig Farm Construction Project" and Nanxiong Wenshi Ecological Breeding Co., Ltd. Fish Fresh Breeding Pig Farm Reconstruction Project".

Among them, Wenshi provides interest-bearing loans of not more than 382,500 yuan to Daoxian Wens, and interest-bearing loans of not more than 80 million yuan to Nanxiong Wen's with a borrowing interest rate of 3.25%, and the loan period is not more than 3 years from the date of actual issuance of the loan, and Daoxian Wens and Nanxiong Wens can repay or renew the loans in advance or due according to their actual business conditions.

In this regard, Wen shares said that the company invested part of the funds raised by convertible bonds in the fundraising and investment projects of Sun Company by way of borrowing, which is based on the construction needs of the implementation of relevant fundraising and investment projects, and the use and purpose of the raised funds are in line with the company's business development direction, in line with the use plan of the raised funds, and there is no disguised change in the use of the raised funds, which is conducive to ensuring the smooth implementation of the fundraising projects and improving the efficiency of the use of the raised funds, so as to meet the company's business development needs. The investment of funds raised is in line with the company's development strategy and long-term planning, which is conducive to enhancing the company's profitability and the interests of the company and all shareholders. The object of the loan provided by the company this time is the company's grandson, and the company has control over its production and operation management activities during the period of providing the loan, and the financial risk is controllable.

In addition, the "Announcement on the Adjustment and Implementation Progress of Some Raised Fund Investment Projects" disclosed by Wen's shares on the same day, of the 11 fundraising and investment projects to be adjusted, only 2 projects, namely "Honghu Wenshi Animal Husbandry Co., Ltd. Big Tree Breeding Community and Honghu Wenshi Animal Husbandry Co., Ltd. Tuanfeng Breeding Community", actively slowed down the construction progress due to sluggish market conditions, and the rest of the projects were adjusted for non-market downturn. However, judging from the announcement, the above 11 projects have not stopped, but continue according to the current adjustment plan. According to the announcement, after adjustment, the completion and commissioning of the above 11 projects is expected to be in June 2024 or December 2024. It can be seen that in terms of capacity expansion, Wenshi shares still have no intention of stopping.

While suffering huge losses, Wenshi shares continue to expand production capacity, what is the belief behind this wave of operations? For Wens, which has lost money one after another, is this "blind expansion" or "waiting for pig prices to pick up"?

So when will pig prices completely turn clear? Can this downturn usher in a turning point with the Mid-Autumn Festival, National Day, and even the Spring Festival in the second half of the year?

Some insiders pointed out that although pig prices have picked up after entering August, superimposed on the subsequent double festival and cured bacon for the Spring Festival New Year goods and other stimulus consumption, pig prices may have a certain moderate rise, but will usher in a complete recovery of pig prices, whether it can usher in a sharp rise, from the current supply background of sufficient supply, there is no basis for a sharp rise in pig prices in the short term.

For pig breeding, Capital Securities recently released a research report pointing out that it is expected that from September to October to be pressed and secondary fattening out of the fence, may lead to a short-term increase in supply and bring about a price decline, the sector capacity is expected to be re-enhanced and there will be a corresponding rebound market, but considering that the pig price at the end of the year is expected to rise again under the peak demand season and the marginal decline of the supply margin, the inflection point of production capacity is expected to take longer to wait.

In the secondary market, as of the close of 3 pm on August 31, the three major A-share pig breeding enterprises mentioned above all closed down, of which Wenshi shares closed down 1.71%, closing at 16.66 yuan, the largest decline.

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