2021-10-28, Xu Qing of Southwest Securities Co., Ltd. conducted research on Keqian Biotech and published the research report “Farming Profitability or Restoration, Non-Strong Exemption, and Long-term Improvement”. This report gave Keqian Biotech a buying rating. The current stock price is 25.07 yuan.
Pre-family organisms (688526)
Performance summary: In the first three quarters of 2021, the company achieved operating income of 780 million yuan, a year-on-year increase of 28.4%, and net profit of 390 million yuan, an increase of 20.7% over the previous year. The third quarter achieved operating income of 230 million yuan, a year-on-year change of -7.4%, and net profit of 997.65 million yuan, a year-on-year change of -27.1%. Looking at the first three quarters, the overall growth was steady. However, in the third quarter, due to low pig prices, breeding companies were in a loss range, so the company's sales revenue declined slightly in the third quarter.
The profit level of downstream aquaculture enterprises will experience marginal improvements, aquaculture efficiency will become the core of their development, and demand for animal insurance products will further increase. In the first half of 2021, the number of pigs kept nationwide was 440 million heads, up 29.2% year on year, and 45.64 million sows that can be raised, up 25.7% year on year. As of mid-October 2021, the average price of pigs was around 12 yuan/kg. Breeding companies generally lost money, and in this cycle, African swine fever has increased the cost range of farming, and the cost gap between different breeding entities can reach 10 yuan/kg. Therefore, we believe that the core factor in the demand of the animal insurance industry this time was affected by the one-time impact of African swine fever and the short-term restoration of the profitability of breeding enterprises. The factors that influence the profitability of breeding enterprises are mainly composed of the three aspects of feed costs, pig prices, and pig mortality. Judging from the current point of view, all three have shown a clear marginal improvement trend. The overall cost center of the industry has moved downward, profit levels have increased, and demand for corresponding animal insurance products will also gradually accelerate. In the long run, the aquaculture side will make it clear that financial advantage is no longer the only threshold. Cost control and a scientific attitude to the prevention and control of the epidemic will work together with it to become a standard of measurement for excellent and efficient breeding enterprises, and the demand for animal insurance products will also increase as a result of another trend in the growth value of animal insurance products.
The concentration of the veterinary biological products industry is expected to increase further. The company focuses on developing and introducing new products, which is expected to further expand its market share. According to data from the National Bureau of Statistics, at the end of 2020, there were 123 veterinary biological products manufacturers in China, 24 large enterprises, accounting for 20.2%, and 76 medium-sized enterprises accounting for 63.9%. The top ten biological products companies in 2020 had total sales volume of 8.45 billion yuan in 2019, accounting for 52.05%, but there is still room for improvement compared to developed countries. As a leading enterprise in the production of vaccines for non-compulsory immunization diseases, the company is expected to further expand its market share and usher in revenue growth in the future; in 2019, the company ranked second in sales revenue in the domestic non-national compulsory immunization veterinary biological products market, ranked first in sales revenue in the non-national compulsory immunization pig biological products market, and ranked first in sales revenue in the non-national compulsory immunization pig biological products market, swine pseudorabies vaccine, porcine parvovirus vaccine, swine gastroenteritis, diarrhoea vaccine, etc., and has various qualifications, and has a national enterprise technology center, Ministry of Agriculture and Rural Affairs enterprise key laboratory, post-doctoral research workstation, etc., to build various research platforms. Update products, strive for technology to be ahead of the industry, and products ahead of demand.
Under the influence of anti-plague and anti-insurrection, the difference between the farming background and previous cycles will drive demand companies for animal protection products to make full use of their product advantages, stabilize their leading position in feudal medicine, and improve their performance over the long term. African swine fever was effectively controlled, but before the targeted vaccine was introduced, the emphasis on epidemic prevention did not decrease, and demand for products related to complications increased due to the impact of pig resistance; the “anti-resistance” policy made it impossible to use antibiotics on the feed side. To ensure breeding efficiency, farmers had a positive attitude towards non-compulsory immunization and disease prevention, and the market growth of non-national compulsory veterinary biological products was significantly faster than the national compulsory immunization of veterinary biological products. After 2015, the market share of non-compulsory and exempt varieties gradually increased, from 40% in 2015 to 63.9% in 2020. The company has a rich product matrix. The market share of the pig pseudomania vaccine reached 29.2% in 2019. It can also provide pig pseudomaniac vaccine and inactivated vaccine. It has obvious advantages in strain extraction technology. It uses local swine strains isolated in China, so the product adaptability and immunogenicity are stronger, and more suitable for local pig breeding in China; the company adheres to a system combining “direct sale+distribution” to expand the service radius. It has different strategies for large, medium and small farms, and continues to expand business by leveraging the dual advantages of products and services.
Profit forecasts and investment advice. Based on the company's business situation in the first three quarters, taking into account current market demand, and rationally adjusting the profit forecast, the 2021-2023 EPS is expected to be 1.17 yuan, 1.52 yuan, and 1.86 yuan respectively, and the corresponding dynamic PE will be 22/17/14 times, respectively, maintaining the “buy” rating.
Risk warning: African swine fever epidemic; product market demand falls short of expectations, etc.
The stock has been rated by 13 institutions in the last 90 days, with 11 buying ratings and 2 additional ratings; the average institutional target price for the past 90 days is 43.34; according to the Securities Star valuation analysis tool, Keqian Biotech (688526) has a good company rating of 4 stars, a good price rating of 2 stars, and an overall valuation rating of 3 stars.