Central China: Pig prices remain weak, while "Double Eleven" pet data continues to grow.

Central China released a research report stating that in October, the farming end of the industry saw planned culling, but demand side was relatively weak, resulting in an oversupply situation in the market, leading to fluctuating and downward pig prices. The previous clearing of the production capacity of sows has translated into an increase in pig production, coupled with improved cost prices, the profitability of the farming end has fully recovered. It is expected that by the fourth quarter of 2024, the market will enter a situation of dual growth in supply and demand, and pig prices are expected to maintain a strong trend, further opening up room for rebound. Regarding pet food, in the short term, there is a rebound in export data. In the long term, the continuous increase in the penetration rate of pet-owning households and the improvement in the average consumption level of pet-owning households will be the main driving factors for the steady growth of China's pet economy. Central China pointed out that currently the industry's P/E ratio and P/B ratio are lower than the historical valuation center, at relatively low levels, and are expected to see a valuation rebound in the future, maintaining an investment rating of "stronger than the overall market" for the industry. It is recommended to pay attention to Muyuan Foods (002714.SZ), Guangdong Haid Group (002311.SZ), QIULE SEEDS (831087.BJ), Gambol Pet Group (301498.SZ), Yantai China Pet Foods (002891.SZ), and Petpal Pet Nutrition Technology (300673.SZ). Key points from Central China: - Market review: In October, the agriculture, forestry, animal husbandry and fishery industry outperformed the benchmark index. According to Wind data statistics, in October 2024, the agriculture, forestry, animal husbandry and fishery (CITIC) index dropped by 1.10%, ranking 22nd out of 30 first-level industries in CITIC; during the same period, the Shanghai and Shenzhen 300 index fell by 3.16%, with agriculture, forestry, animal husbandry, and fishery outperforming the benchmark index by 2.06 percentage points. In terms of sub-industries, the seed sector had the highest increase in October, while the livestock and breeding sector had the highest decline. - Pig farming: The average national price for pigs (Duroc breeds) in October 2024 was 17.66 yuan/kg, a month-on-month decrease of 6.95% and a year-on-year increase of 16.80%. The average price for pigs from January to October 2024 was 16.88 yuan/kg, a year-on-year increase of 11.94%. The farming end carried out planned culling in October, but the demand side was relatively weak, leading to an oversupply situation in the market and causing pig prices to fluctuate downward. The previous clearing of sow production capacity has resulted in an increase in pig production, combined with improved cost prices. It is expected that by the fourth quarter of 2024, the market will enter a situation of dual growth in supply and demand, and pig prices are expected to remain strong, further opening up room for rebound. - Broiler chicken: The average price for white-feather broiler meat in October 2024 was 3.65 yuan/jin, an increase of 0.13 yuan/jin from the previous month, and a year-on-year decrease of 0.03 yuan/jin; the average price for white-feather broiler chicks was 4.36 yuan/chick, with an increase of 0.75 yuan/chick from the previous month, and a year-on-year increase of 2.17 yuan/chick. In terms of supply, in October, there was a relatively tight supply of broilers in society, with increased difficulty in enterprises' procurement and operations to purchase feathers at higher prices. The strong pulling effect of the supply side resulted in fluctuations and increases in the price of broilers. It is expected that the average price of broiler chickens for the whole year of 2024 will increase year-on-year. Combined with the relief of cost pressures, it is expected to promote the gradual release of profit elasticity in the farming industry, and the profit levels of relevant listed companies in the industry will continue to improve. - Pet food: In September 2024, China's exports of pet food reached 25,600 tons, an increase of 5.47% year-on-year; from January to September, cumulative exports reached 242,600 tons, an increase of 25.9% year-on-year. In terms of value in USD, the export value of pet food in September 2024 was $124 million, an increase of 11.04% year-on-year; the cumulative export value from January to September was $1.098 billion, an increase of 21.08% year-on-year. In the short term, China's export data for pet food is recovering, and due to the low base in the first half of 2023, it is expected that relevant companies' fundamentals will see improvement; in the long term, the continuous increase in the penetration rate of pet-owning households and the improvement in the average consumption level of pet-owning households will be the main driving factors for the steady growth of China's pet economy. - Investment recommendation: Currently, the industry's P/E ratio and P/B ratio are lower than the historical valuation center, at relatively low levels, and are expected to see a valuation rebound in the future. It is recommended to maintain an investment rating of "stronger than the overall market" for the industry. It is advised to pay attention to Muyuan Foods (002714), Guangdong Haid Group (002311), QIULE SEEDS (831087), Gambol Pet Group (301498), Yantai China Pet Foods (002891), and Petpal Pet Nutrition Technology (300673). - Risk warning: Large fluctuations in livestock and poultry prices, substantial fluctuations in grain prices, outbreaks of animal diseases; the commercial application of biological breeding in China is lower than expected; food safety issues, natural disaster events.