Huaan: It is expected that the enthusiasm for replenishing pig herds in the fourth quarter of 2024 will continue to be weak, and pig prices in 2025 will be strongly supported.

Huaan released a research report stating that the average asset-liability ratio of listed pig companies at the end of the third quarter remained at a high level of 61.5%. Furthermore, the winter is a peak period for outbreaks in the northern regions. As of now, pig prices are also lower than in the third quarter, and it is expected that the enthusiasm for restocking in the fourth quarter will be weaker than in the third quarter, with the enthusiasm for restocking continuing to be weak. Yongyi Consulting and Shanghai Ganglian E-Commerce Holdings announced the sow inventory in October, which increased by 0.2% and 0.39% month-on-month, respectively. In September, the increase was 0.64% and 0.53% month-on-month, indicating a weakening trend in restocking enthusiasm in October. According to calculations, the average sow inventory of the statistics bureau in 2024 is expected to decrease by about 4.5% compared to 2023. With pig prices expected to receive strong support in 2025, costs are expected to decrease compared to 2024. The net profit of sows is expected to increase year-on-year, and with the continuous increase in the slaughter volume of listed pig companies, the pig sector is expected to realize its performance logic. Huaan's main views are as follows: Capacity recovery is noticeably slow, with leading pig enterprises driving the increase in capacity According to official data, as of the end of the second quarter and third quarter of 2024, the sow inventory was 40.38 million heads and 40.62 million heads, respectively, with a slight increase of 1.2% and 0.6% respectively on a month-on-month basis. Although the average pig price in the third quarter reached 19.39 yuan/kg, the enthusiasm for restocking is still weak. Industry data shows that the recovery of pig production capacity since 2024 is significantly weaker than in 2022. As of the end of September 2024, the average asset-liability ratio of 20 listed pig companies remained at a high level of 62%, and the scale of equity financing completed by listed pig companies was limited, leading to continued high industry funding pressure. As of the end of June 2024, both Muyuan and Wenshi had increased their sow inventory by about 16,700 and 10,000 heads respectively compared to the end of March. The two companies jointly increased by about 26,700 heads, accounting for 58% of the total national increase in sow inventory in Q2. As of the end of September 2024, Zhengbang and Shennong's sow inventory had increased by about 41,000 and 16,000 heads respectively compared to the end of June, with the two companies jointly increasing by about 57,000 heads, accounting for 23.8% of the total national increase in sow inventory in Q3. In 2025, pig prices will receive support, and the performance of listed pig companies will be realized From 2017 to 2023, the average annual sow inventory in China is highly negatively correlated with the national average pig price one year later, with 2022 being an exception. It is believed that the high proportion of low-efficiency sows in 2021 led to a distortion in the data due to the significant increase in breeding production efficiency in 2022. Based on data from the National Bureau of Statistics, Huaan assumes that the sow inventory will increase by 0.5%-2% in Q4 of 2024, corresponding to a decrease in the average sow inventory by 4.4%-4.8% compared to 2023. According to data from Yongyi Consulting and Shanghai Ganglian E-Commerce Holdings, Huaan assumes that the month-on-month increase in sow inventory in November and December 2024 will be 1%, corresponding to decreases in the average sow inventory by 0.56% and 2.36% respectively compared to 2023. Based on the annual sow inventory, it is inferred that pig prices in 2025 will receive strong support. The production cost of listed pig companies in 2024 is on a downward trend, and it is almost certain that the production cost in 2025 will decrease compared to 2024, resulting in a year-on-year increase in net profits of sows. With the continuous increase in slaughter volume, the major listed pig companies are expected to see a year-on-year increase in performance in 2025. Waiting for the stabilization and rebound of pig prices in the peak consumption season During the current cycle from December 2022 to March 2024, 9.1% of pigs were slaughtered. In April 2024, the National Ministry of Agriculture reported a further decrease of 0.1% in sow inventory from the previous month. The overall slaughter rate has exceeded that of 2021-2022, and compared to June 2021, the sow inventory has decreased by 12.5%. Pig prices were in an upward cycle in 2024, reaching a peak on August 11th. However, prices have been fluctuating downwards since then. Huaan believes that the significant decline in pig prices is due to factors such as the continuous slaughter of large pigs and short-term underperformance in pig breeding. Since late September 2024, meat-to-pig price ratios have stabilized above 1.6, similar to the same period in 2023. On November 7th, the price difference between pork and live pigs was 5.03 yuan/kg, higher than 4.12 yuan/kg in the same period last year, indicating that pork consumption has not been weakening. By November 10th, the utilization rate of fattening pens had decreased by 12%-43% year-on-year and 5%-23% week-on-week, with fat hog price differentials remaining high. With the arrival of the peak consumption season, pig prices are expected to stabilize and rebound. According to the forecasted pig slaughter volume in 2024, the average market value per head for Wenshi is 2727 yuan, for Muyuan is 3290 yuan, for Leshan Giantstar Farming & Husbandry Corporation is 3517 yuan, for Huatong is 2533 yuan, for New Hope Liuhe is 2953 yuan, for Tecon Biology Co. Ltd is 1667 yuan, and for COFCO JOYCOME is 1644 yuan. The valuations of first and second-tier pig enterprises are mostly at historical lows. Huaan continues to recommend the pig farming sector, with a focus on Wens Foodstuff Group (300498.SZ), Muyuan Foods (002714.SZ), Yunnan Shennong Agricultural Industry Group (605296.SH), and Tecon Biology Co. Ltd (002100.SZ). Risk Warning Epidemic; pig prices remaining high for less time than expected.