Central China: Performance and profitability levels continue to improve, and the agriculture, forestry, animal husbandry, and fishery sector is expected to see a return to reasonable valuations.

Central China released a research report stating that the performance of the agriculture, forestry, animal husbandry, and fishery industries in January was stronger than the benchmark index. In terms of animal husbandry, the previous round of increase in the sow production capacity has led to a reaction in the finishing pig aspect until 2024, which will drive a year-on-year increase in pig prices in 2024, combined with the improvement in cost prices. It is expected that the full-year performance of the industry-related listed companies in 2024 will usher in a turning point. Pet feed maintained counter-cyclical growth under the overall downward trend in industry production. In the short term, China's pet food export data is improving, and due to the low base in the first half of 2023, the fundamentals of relevant companies are expected to improve. Currently, the price-to-earnings ratio and price-to-book ratio of the agriculture, forestry, animal husbandry, and fishery industries are lower than the historical valuation center, at a relatively low level, and are expected to return to normal in the future. Central China's main points are as follows: Market review: The performance of the agriculture, forestry, animal husbandry, and fishery industries in January was stronger than the benchmark index. According to Wind data, in January 2025, the agriculture, forestry, animal husbandry, and fishery index (CITIC) fell by 2.12%, ranking 14th among the 30 first-tier industries in CITIC; during the same period, the Shanghai and Shenzhen 300 index fell by 2.99%, with the agriculture, forestry, animal husbandry, and fishery industries outperforming the benchmark index by 0.87 percentage points. In terms of sub-sectors, the pet food sector led in terms of price increase in January, while the aquatic processing sector led in terms of price decline. Pig farming: In January 2025, the average national trading price of pigs (Duroc) was 15.77 yuan/kg, a month-on-month decrease of 0.25% and a year-on-year increase of 10.82%. In January, the enthusiasm for slaughtering in the breeding end increased, accelerating the pace of slaughtering, but downstream demand was average, and the market was generally in a situation of oversupply, with prices fluctuating downward. The reaction of the previous round of sow production capacity reduction to the finishing pig level until 2024, will drive a year-on-year increase in pig prices in 2024, combined with the improvement in cost prices, the profitability level of the breeding end has completely rebounded, and it is expected that the full-year performance of industry-related listed companies in 2024 will usher in a turning point. Broiler chickens: In January 2025, the average price of white feathered broiler chicken chicks was 2.49 yuan/chick, a month-on-month decrease of 1.31 yuan/chick and a year-on-year decrease of 0.24 yuan/chick; the average price of white-feathered broiler chicken was 3.65 yuan/jin, a month-on-month decrease of 0.07 yuan/jin, a decrease of 1.88%; and a year-on-year decrease of 0.21 yuan/jin. In January, the supply of chicken sources was relatively sufficient, but demand was relatively flat, compounded by the impact of the Spring Festival holiday resulting in a decrease in enterprise slaughter volume and a slight decline in chicken prices. With the easing of cost pressures and the stabilization and rebound of chicken prices, the gradual release of the profit elasticity of the breeding industry is expected, and the profit level of industry-related listed companies will continue to improve. Pet food: According to the Feed Industry Association, the production volume of pet food in 2024 was 1.599 million tons, an increase of 9.3%, maintaining counter-cyclical growth under the overall downward trend in industry production. In the short term, China's pet food export data is warming up, and due to the low base in the first half of 2023, the fundamentals of relevant companies are expected to improve; 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 steady growth in China's pet economy. Investment advice: Currently, the industry's price-to-earnings ratio and price-to-book ratio are lower than the historical valuation center, at a relatively low level, and are expected to return to normal in the future. The industry maintains an investment rating of "outperforming the market". It is recommended to pay attention to Muyuan Foods (002714.SZ), Guangdong Haid Group (002311.SZ), QIULE SEEDS, Gambol Pet Group (301498.SZ), Yantai China Pet Foods (002891.SZ), Petpal Pet Nutrition Technology (300673.SZ). Risk warning: Large fluctuations in livestock and poultry prices, significant fluctuations in grain prices, outbreak of animal diseases; the commercial application of biological breeding falls short of expectations; food safety issues, natural disaster events.