CICC: Upgrading the target price of Dekang Agriculture and Animal Husbandry (02419) to HK$111 to maintain “outperforming the industry” rating

Zhitongcaijing · 07/04 01:57

The Zhitong Finance App learned that CICC released a research report stating that it maintains Dekang Agriculture and Animal Husbandry (02419)'s profit forecast for 25/26, and the current stock price corresponds to 11.5/6.7 times P/E for 25/26. Considering the continued growth of the company's fundamentals and improved trading liquidity, the target price was raised 68% to HK$111, corresponding to 14.8/8.6 times P/E in 25/26, which is 28% higher than the current price. The company's advantages of “light assets, low cost, and high elasticity” are constantly being strengthened. It is expected to continue to achieve high returns, can be expected to recover in value, maintain an outperforming industry rating, and is expected to lead a new paradigm in China's pig industry.

CICC's main views are as follows:

“Company+farmer” asset-light development, No. 2 farm sow surrogacy model achieves the lowest cost in the system

On the one hand, based on the traditional “No. 1 farm” model of pig surrogacy, the company pioneered the “No. 2 farm” model of sow surrogacy, which is lighter in assets, and leverages operating leverage to achieve asset-light expansion. The bank judged that the current company's own pig business/No. 1/No. 2 farm model accounts for 20%/60%/20%, and estimated that the average total assets of Dekang/industry leaders in 24 years were 1,537/2,317 yuan/head. The bank's “China's Pig Breeding Industry under a New Paradigm” report suggests that the new paradigm of growth “looks from the outside” and returns to “demand from within,” and the Dekang model requires less capital expenditure and a stronger degree of fulfillment; on the other hand, the Dekang model is highly efficient and strongly tied to farmers, mobilizing enthusiasm to feed back operations. Currently, the farming cost of the No. 2 farm model is lower than that of the No. 1 farm, self-operated model. The company announced that farmers who have signed contracts for 24 years have an average annual income of about RMB 770,000, a record high in the company's history; Dekang No. 2 Farm has higher surrogacy fees and a longer period of cooperation.

Adhere to the encryption strategy in the southwest region, technological empowerment and efficient management help reduce costs and ensure production capacity growth

In terms of cost, 2Q25 continued the trend of cost reduction, and its cost advantage settled in the first tier of the industry. According to company communication, recently the company's total monthly cost is less than 12.5 yuan/kg. The bank believes that it stems from adhering to the efficient supply chain and high-quality household resources brought about by the encryption strategy of breeding in the southwest region, technical empowerment of pig breeding and feed nutrition technology, and strict health management and efficient digital management. In terms of production volume, Dekang's core breeding pig production capacity is quite adequate. According to the announcement, the number of pigs released by Dekang in January-May '25 was 4.297 million, an increase of 29%; based on the production capacity of 1.49/14.07/440,000 heads of core group pigs/purebred pigs/sows at the end of '24, the bank expects to release 11.00/15 million heads in 25/26, which is expected to exceed 30 million in the long term.

Liquidity continues to improve, and valuations are still expected to rise. The bank is optimistic about Dekang's value restoration

1) Liquidity: Since the release of Dekang's 24-year annual report on March 11, the average daily turnover rate was 1.9%, +1.88ppt compared to the same period last year; the average daily turnover was 140 million yuan, compared to 3.69 million yuan in the same period last year; as of July 2, Hong Kong Stock Connect's share increased 16.6ppt to 18.1% compared to March 11. 2) Valuation: Since the release of Dekang's 24-year annual report, awareness of the growth narrative has increased, driving improvements in liquidity, and there is still room for value restoration. The bank estimated that on July 3, the company's average market value was 2,528 yuan/head, leaving room for a 22% increase compared to the average valuation of industry leaders.