CMSC: Reform of the supply side of live pigs may have begun, the profit elasticity of "low cost+" pig enterprises may be fully released.

CMSC released a research report stating that, based on the goal of anti-"involution" and stable CPI, the policy side is starting to regulate the production capacity of sows, which may further raise the central price of pigs in 2025-2026. The profit elasticity of "low-cost +" pig enterprises is expected to be fully released. Currently, the valuation of the sector is still in the historical bottom area. key recommendations include Muyuan Foods (002714.SZ) and Wens Foodstuff Group (300498.SZ), and suggestions to focus on Yunnan Shennong Agricultural Industry Group (605296.SH), Dongrui Food Group (001201.SZ), COFCO JOYCOME (01610), etc. CMSC's main points are as follows: Regulation of pig production capacity may have been initiated against the background of anti-"involution" In July 2024, the Political Bureau meeting first mentioned "preventing involution-type vicious competition," and "anti-involution" became a major focus of government work this year, which was included in the government work report. In May, the NDRC mentioned again rectifying "involution-type" competition, and in June, the sixth meeting of the Central Finance and Economics Committee further escalated policy measures, once again emphasizing the governance of low-price disorderly competition by law and regulations, promoting the orderly withdrawal of backward production capacity, and for the first time clarified the specific path of "promoting the orderly withdrawal of backward production capacity," including establishing a production capacity replacement red line, improving environmental energy consumption standards, strengthening financial credit constraints, etc. Under the background of anti-"involution," the NDRC recently convened the top 30 pig companies in the industry twice for a pig anti-"involution" meeting, focusing on: 1) stopping the increase of the inventory of sows; 2) controlling the slaughter weight within 120kg; 3) not encouraging the sale of second-parity sow sources, etc. Policies may promote a reduction in sow production capacity 1) From a policy perspective, the core goal is to regulate sow production capacity and boost pig prices to achieve the policy objectives of driving CPI, breaking out of deflation, and boosting market confidence. Specific measures include but are not limited to window guidance, joint guidance with the CSRC/CBIRC to restrict direct financing/indirect financing in specific areas, environmental protection, etc., or is based on the real-time control effect layer by layer. 2) From the perspective of pig enterprises, after experiencing rapid expansion in the early stage, the current asset-liability ratio is still at a historically high level. According to the announcements of listed pig enterprises, as of Q1 2025, the asset-liability ratio of 16 listed pig enterprises still exceeds 60%. Group pig enterprises may also have the motivation to cooperate with the reduction of production capacity after the rapid expansion in the early stage, in order to exchange quantity for price and relieve the pressure on the debt side. Risk warning: Policies not meeting expectations; sudden large-scale uncontrollable diseases; pig price fluctuations exceeding expectations; sales volume/cost of listed pig enterprises not meeting expectations.