COFCO Jiajiakang: Main points of view and risk points

$COFCO Jiakang(01610)$ $Muyuan Shares(SZ002714)$ $Zhengbang Technology(SZ002157)$

I came from the countryside and helped my family feed the pigs, wash the pigsty, fish for duckweed, cut sweet potato leaves and so on since I was a child. About one-third of millet in spring and autumn is used as the staple food for humans, and the other two-thirds are used to feed pigs.

Of course, it is quite exciting to kill a pig during the festival. The neighbors all came to have a hearty breakfast (I did not miss the neighbors too), and everyone was happy.

More importantly, the most important source of tuition and living expenses from primary school to university is the income from selling live pigs. Therefore, I have a lot of affection for the second senior brother, and I also have a real and simple understanding of the pig cycle.

Closer to home, from the beginning of 2020, I invested in Jiajiakang, and now I am making a second round of investment. Combined with the investment experience of the past three years, let’s talk about the investment thinking of Jiajiakang.

(1) The main point of view of investor Jiakang

1. Excellent cost control ability

Jiajiakang is backed by COFCO, and the synergy between the upstream and downstream of the industrial chain is very obvious, which gives Jiajiakang a good cost control ability. In the pig industry, only Muyuan shares can be compared, and Zhengbang Technology is the representative of the other extreme.

This alone can make Jiajiakang invincible. As Sun Tzu said in the Art of War: Undefeated, then you can go to war.

2. Steady and steady production capacity expansion strategy

The process of my country’s agricultural industrialization has entered the fast lane, and the rapid increase in the industry concentration of the pig industry is inevitable. Faced with such an industry development situation, Muyuan Co., Ltd., Zhengbang Technology, New Hope, etc. are undoubtedly ambitious and have formulated a rapid expansion strategy by leaps and bounds. But this rapid expansion strategy undoubtedly puts the company in a high-risk situation.

However, Jiajiakang resisted the temptation and formulated and implemented a development strategy of steady expansion. Undoubtedly worthy of praise! !

3. Steady progress of consumption transformation strategy

Personally, I believe that the transformation to consumption is the most long-term and core development strategy of Jiajiakang, and it is also the biggest attraction of investor Jiakang!

The name change from “COFCO Meat” to ” COFCO Jiakang ” is the most obvious signal. Judging from the data disclosed every month, Jiajiakang’s sales of fresh meat and brand meat have steadily increased, and the proportion of slaughtered and finished pigs has also steadily increased. The construction of segmentation factories close to the consumer market, the construction of the system of specialty stores, and the promotion of online and online stores have been carried out frequently and have achieved remarkable results.

4. Unique status as a state-owned enterprise and a central enterprise

For well-known reasons, the rice bowl of pork must be in the hands of the Chinese. Among them, there will definitely be state-owned enterprises occupying an important position, and Jiajiakang of COFCO will undoubtedly have the greatest opportunity! !

At present, COFCO Jiajiakang has built an integrated operation chain of the whole industry chain including feed supply, breeding, slaughtering, brand sales, and futures hedging. However, this chain needs to be further enlarged and stronger, and the chain needs to be strengthened. From the perspective of the most important animal protein supply for the 1.4 billion Chinese people, COFCO Jiakang will surely undertake the mission of a state-owned enterprise and a central enterprise.

5. A clear and feasible development strategy

From the above points, it can be seen that Jiajiakang has a clear and feasible development strategy, and the management team with President Jiang as the core is steadily advancing according to the strategic plan.

Those who have experience in senior management of enterprises will understand that this is especially important! ! !

(2) The main risk points of Investor Jiakang

Of course, just as there is no perfect individual, there is no perfect business. At present, there are two main points of controversy or risk for investors Jiakang:

1. Is Jiajiakang’s futures hedging necessary and feasible?

Because of the misjudgment of the pig cycle and because the proportion of futures hedging is too large, Jiajiakang has suffered huge losses in futures this year, which has also been criticized by the majority of investors.

But in fact, combining last year and this year, Jiajiakang’s futures hedging is still good. For an industry like pork with high price volatility and long production cycle, it is necessary and feasible to use futures hedging.

It is believed that with the advancement of time, hog futures should be like other futures varieties, its marginal risk will be reduced, and the positive effect of hedging will be further exerted.

2. In the financially fierce Hong Kong stock market, will Jiajiakang’s valuation be difficult to repair?

Under the current volatile international situation, Hong Kong’s capital market has lost the independence it should have, and has even been in the main battlefield of international financial confrontation! ! !

In the context of the deteriorating liquidity of the Hong Kong stock market, there are not a few outrageous stocks undervalued in the Hong Kong stock market!

It is difficult for Jiajiakang’s valuation to stay on its own. But the market is also fickle. As long as Jiajiakang’s own performance is good and its business continues to improve, it is not impossible to make a big market!

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