China Galaxy Securities: Average pig prices will be under pressure year-on-year in 2025, focusing on recommending "large pig enterprises"

China Galaxy Securities released a research report stating that based on the research framework of production capacity and efficiency, the pressure on the number of sows capable of reproduction in 2025 may have eased, but there is a possibility of rapid improvement in breeding efficiency, which may lead to an increase in the number of pigs slaughtered in 2025 on a year-on-year basis, meaning that the average price of pigs during the same period may decrease year-on-year. However, supported by lower average prices of feed raw materials and improvements in breeding efficiency, the speed of cost optimization for excellent pig enterprises has increased, and the profits of excellent pig enterprises in 2025 are still considerable. The industry competition has entered a stage of refined management competition, coupled with the consideration that the valuation of the pig breeding industry is low, the company focuses on recommending "big pig enterprises" such as Muyuan Foods (002714.SZ), Wens Foodstuff Group (300498.SZ), "medium and small pig enterprises" such as Tecon Biology Co.Ltd (002100.SZ), Yunnan Shennong Agricultural Industry Group (605296.SH), and other related pig enterprises within the sector. The main points of view of China Galaxy Securities are as follows: In 2024, pig enterprises turned losses into profits and production capacity was at a four-year low. In 2024, the SW pig farming index fell by 14%. During that period, benefiting from the logic of reducing production capacity and expectations of rising pig prices, the industry index fluctuated upward from February to May, with a magnitude of about +30%. From a fundamental perspective, most pig enterprises have been profitable since Q2 of 2024. The pig farming industry in 2024 was relatively stable in terms of reducing production capacity, showing a trend of initially declining and then increasing. As a result of the impact on profits from the decline in prices, the number of sows capable of reproduction in January 2025 in China decreased by 0.39% from the previous month. In Q4 of 2024, the market share of listed pig enterprises reached a new high, but breeding profits shrank. In Q4 of 2024, 15 listed pig enterprises collectively slaughtered 45.64 million pigs, an increase of 22% month-on-month and 10% year-on-year; only Fujian Aonong Biological Technology Group Incorporation and Zhejiang Huatong Meat Products saw a decrease month-on-month; Fujian Aonong Biological Technology Group Incorporation, Tech-bank Food, COFCO JOYCOME, New Hope Liuhe, and Zhejiang Huatong Meat Products saw a decrease year-on-year. The market share of 15 listed pig enterprises rose from 5.6% in 2017 to 22.2% in 2024, an increase of 1.5% year-on-year, reaching a historical high. The quarterly average price of pigs in Q4 of 2024 was 17.34 yuan/kg, an increase of 15% year-on-year and a decrease of 12% month-on-month, with pig prices fluctuating downward during the quarter. The average selling price of pigs for listed pig enterprises was 16.52 yuan/kg, an increase of 17% year-on-year and a decrease of 14% month-on-month. Compared to the industry level, the selling price of pigs for listed pig enterprises was generally lower, which the company believes may be related to factors such as the distribution area of pig enterprises, sales volume, and the structure of pig slaughter. In January, the number/price/average weight of pigs slaughtered by pig enterprises decreased, resulting in differentiated profit capabilities. In January 2025, the total sales volume of pigs slaughtered by 14 listed breeding enterprises in China was 825,000 heads, a decrease of 6% month-on-month and an increase of 7% year-on-year, mainly due to the impact of holidays and concentrated slaughter; among them, Li Hua, Dongrui, Tangrenshen Group, and Jiangxi Zhengbang Technology led the year-on-year increases. Since the peak in August 2024, the monthly pig prices for listed pig enterprises have continued to decrease significantly and were significantly lower than the industry average level; pig enterprises with relative price advantages include Li Hua, Wens, and Huatong, mainly benefiting from price advantages in sales areas, mainly in the East and South China regions. The average weight of pigs slaughtered by listed pig enterprises was about 1.4% lower than the industry average. The change in breeding profits in January 2025 was relatively stable, with differences in profitability between enterprises due to differences in cost control capabilities. Based on the framework of production capacity and efficiency, the average pig price in 2025 is under pressure compared to the previous year. The number of pigs slaughtered is mainly determined by production capacity and breeding efficiency. The estimated number of sows capable of reproduction in 2025 is 40.42 million heads, a decrease of 1.68 million heads year-on-year, a significant expansion of the decrease, and the highest point in nearly five years. Considering the situation of the winter epidemic in 2024 and the breeding status of pig enterprises, the company believes that the Maximum Sustainable Yield (MSY) in 2025 has a trend of improvement, but it is still lower than the level before the outbreak of African swine fever. Combining the trend of the number of pigs slaughtered and pig prices, the company estimates that the average annual pig price in 2025 will be between 15.3 and 17 yuan/kg (neutral assumption); if the MSY is above 18 heads, the annual average pig price may be lower than 15.3 yuan/kg. Risks: Risks include livestock and poultry prices not meeting expectations, risks of animal diseases, risks of fluctuating raw material prices, policy risks, risks of natural disasters, etc.