The Zhitong Finance App learned that Changjiang Securities released a research report indicating that in the first quarter of 2024, against the backdrop of still low pig prices, it is expected that sector performance will continue to be under pressure, and the industry may begin to remove production capacity nonlinearly. Looking at the later stages, against the backdrop of continued deep losses in the pig breeding industry, production capacity of some high-cost and high-leverage enterprises may continue to clear, thereby further expanding the cumulative reduction in production capacity, and the inflection point of the pig cycle will also become more and more clear. Currently, the average market value of pig breeding companies is still at the bottom, and we are optimistic about investment opportunities in the sector. We mainly recommend Muyuan Co., Ltd. (002714.SZ), Wen's Co., Ltd. (300498.SZ), Superstar Agriculture and Animal Husbandry (603477.SH), and Shennong Group (605296.SH).

The main views of Changjiang Securities are as follows:

Pig breeding: the industry continues to lose money, and nonlinear capacity removal opens

After experiencing a poor peak season in the fourth quarter of 2023, the overall performance of pig prices in the first quarter of 2024 was still relatively sluggish. The average price of pigs in 2024Q1 was 14.93 yuan/kg, down 2.2% from 2023Q4 and 4.8% year on year. The 15 major listed aquaculture companies listed a total of 24.128 million heads from January to February 2024, an increase of 11.3% over the previous year. With pig prices still below the industry's cost line, it is expected that the performance side of listed pig breeding companies in the first quarter will still be under great pressure. In the later stages, against the backdrop of the pig breeding industry continuing to lose money, the industry may start to remove production capacity nonlinearly.

Since the end of 2022, the pig breeding industry has continued to lose money for 15 months, and the average loss margin is also at a high level in history. In this context, the cash flow of farming companies is already in a tight situation, and some listed companies have begun to experience overdue debts and filing for bankruptcy and restructuring. In a context where short-term cash flow cannot be mitigated, production capacity of some highly leveraged and high-cost large-scale enterprises may continue to clear production capacity, thereby expanding the cumulative reduction of production capacity in the pig breeding industry, and the inflection point of the pig cycle will also become more and more clear. Currently, the average valuation of pig breeding companies is still at a relatively low level. Optimistic about investment opportunities in the pig breeding sector. We mainly recommend Muyuan Co., Ltd., Wenshi Shares, Superstar Farming and Animal Husbandry, and Shennong Group.

Feed: The fishery boom has rebounded slightly, and leading performance has grown steadily

Haida Group's feed sales in the first quarter increased by about 5%-10% year on year. Among them, poultry feed is expected to increase by about 15% year on year, pig feed is expected to show a single-digit year-on-year decline due to downstream market conditions. Special water ingredients are expected to increase by about 5% to 10%, shrimp and crab food is expected to increase by about 20% year on year, and general water supplies increase slightly. Benefiting from improved product structure, the gross margin of the feed business is expected to increase year-on-year. The profit of the main feed industry is expected to increase by about 15% year on year. Furthermore, in the first quarter, the company's pig breeding business is expected to contribute positive profits due to hedging. Considering the performance of the animal insurance and nursery business and loss reduction in the aquaculture sector, the company's 2024Q1 performance is expected to be about 640 million yuan, an increase of about 57% over the previous year.

Animal vaccine sector: The farming boom is sluggish, and the performance of the animal insurance sector is under pressure

Affected by the sluggish farming boom, pig vaccine sales in the first quarter may have declined slightly year-on-year. The performance of the poultry farming industry is divided. The white feather chicken industry continues to be sluggish. It is expected that overall poultry vaccine sales may also show a downward trend year over year, and the animal insurance sector's performance in the first quarter may be under great pressure. In the first quarter, sales volume corresponding to batch issuance of pre-clinical biopseudorabies vaccine is expected to drop by about 7% year on year, sales volume corresponding to batch issuance of gastroenteritis and diarrhea vaccine is expected to drop by about 6% year on year, and sales volume corresponding to batch issuance of the pig circle vaccine is expected to drop about 25% year on year. Overall, Changjiang Securities expects the company to achieve net profit of about 105 million yuan in a single quarter, a year-on-year decrease of about 23%.

Pet food sector: export sales are booming, focus on the domestic sales performance of leading companies

From January to February 2024, exports in the pet category remained strong. In particular, exports to the US increased significantly. From January to February 2024, exports of cat and dog snacks to the world grew by 35%. Against the backdrop of strong export sales in the first quarter of 2024, pet companies' performance in the first quarter is expected to improve significantly year-on-year. In terms of domestic sales, Fregat, the high-end cat food brand that Gaibao Pet focuses on, is in a period of volume growth. Domestic sales of its own brands are expected to maintain a 30% revenue growth rate. The company's first-quarter performance is expected to increase by about 35% year-on-year.

Risk warning

1. The impact of the outbreak of animal diseases caused the scale of the company's launch to fall short of expectations; 2. Additional policies and financial support caused the pig breeding industry to lose production capacity as expected.