Huachuang Securities: Industry capacity is being cleared in an orderly manner; focus on leading companies' profit recovery as the supply-demand landscape improves over the long term.

Huachuang Securities released a research report stating that in the short term, parent stock breeder replacement volume remained at a high level of over 8 million sets in SeptemberOctober, with limited month-on-month decline, and the breeding poultry segment continued to post losses; the grandparent stock inventory base is relatively high, and it takes 1418 months for the contraction in introductions to transmit to commercial broiler output, so there is a long time lag in supply contraction. On the demand side, low chick costs combined with large empty-house losses at large-scale farms have led farmers to mostly maintain normal restocking, providing support for chick placement plans; however, broiler prices lack upward momentum, high feed prices keep breeding costs elevated, and loss risks in the breeding segment remain, with farmers strictly controlling chick purchase costs and continuing to suppress chick prices. Overall, the time lag in supply contraction coexists with cost constraints, and a short-term price inflection point still requires patience. In the long term, continued losses across the industry chain are forcing passive culling of parent stock breeders, industry capacity is being cleared in an orderly manner, and combined with steady growth in substitution demand for poultry meat relative to other meats, the supply-demand landscape is expected to gradually recover. The main views of Huachuang Securities are as follows: Broilers & Chicks: Broiler prices continued to decline, chick prices fluctuated downward Broiler prices continued to decline in September. The monthly average barn-front transaction price was RMB2.99/kg. Within the month, prices overall showed a trend of weak rebounds and continued bottoming at low levels. The main reasons can be attributed to ample market supply and relatively high broiler slaughter volumes; at the same time, terminal meat product consumption fell short of expectations, slaughterhouses continued to bear high inventory pressure, and under the dual bearish pressure of supply and demand, chicken prices came under pressure and continued to weaken. Overall, increased chicken supply combined with unexpectedly weak terminal demand and accumulated finished-product inventories jointly drove a sharp drop in the average broiler price in September. Chick prices fluctuated downward in September. The monthly average price of white-feathered chicks in September was RMB1.66/chick. 1) Broiler prices continued to decline, providing limited support for chick prices, which followed downward; 2) losses in the breeding segment were severe, and the mood to control chick costs was strong; 3) breeding enterprises' plans and high feed costs led the breeding segment to press down chick prices; major producers such as Yisheng had an average chick price of RMB2.37/chick, down 33.5% year-on-year, while Shandong Minhe Animal Husbandry's commercial chick average price was RMB1.73/bird, down 46.4% year-on-year; the sluggish prices generally exerted certain pressure on the market. Under these circumstances, enterprises' enthusiasm for restocking declined, their acceptance of parent stock chick prices decreased, and their willingness to bargain during procurement clearly strengthened. Chicken meat: White-feathered broiler prices rose slightly and then fell In September, the national average price of white-feathered broilers was RMB6.11/kg, -12.59% year-on-year and -11.23% month-on-month; the average price of chicken products was RMB8,200/tonne, -5.34% year-on-year and 4.18% month-on-month. Supply in the white-feathered broiler market continued to expand, inventories were high, demand follow-through was insufficient, and the industry as a whole showed a pattern of relative overcapacity. The main varieties updated this month were: AA+, Lifeng, Cobb, and domestic varieties. Among them, the AA+ variety accounted for 22.62% of introductions; the Lifeng variety accounted for 5.95%; the Cobb variety accounted for 26.79%; and domestic varieties accounted for 44.64%. Overall, the white-feathered broiler market showed unusual performance in September. In early September, the breeding segment showed a rebound and upward trend; in mid-September, prices stagnated, terminal shipments showed no improvement, and price increases were hindered by inventory pressure. In late September, broiler prices fell to a year-to-date low. Breeding profit was -RMB3/bird, down 201.51% year-on-year; some hatchery enterprises turned from profit to loss, with profit decreasing year-on-year, and breeding poultry enterprises' losses intensified at month-end. Downstream consumption was weak during the peak season, and slaughterhouses' book profits came under pressure from potential losses on frozen products due to inventory. Risk warning: Earlier chick purchase costs declined, but feed prices remain high, comprehensive breeding costs are still relatively elevated, broiler profit recovery is weak, and farmers are strictly controlling chick purchase costs, continuing to suppress the upside for chicks.