The Zhitong Finance App learned that Guotai Junan released a research report saying that the current pig cycle position does not match the sector's valuation position, and that the upward trend in the farming sector comes from valuation revisions and revisions to future cycle expectations. At the current stage, the farming sector is recommended from a beta perspective. The targets are Muyuan Shares (002714.SZ) and Wenshi Shares (300498.SZ).

Guotai Junan's main views are as follows:

Investment advice: There is a mismatch between the current pig cycle position and the sector's valuation position. The upward trend in the farming sector comes from valuation correction and correction of future cycle expectations. At the current stage, the farming sector is recommended from a beta perspective, and the target Muyuan shares and Wen's shares are recommended.

Breeding stock trading: Cyclical logic gradually advanced, 2024Q2 pig prices diverged from the index. 1) 2015-2016: Stock prices followed simultaneous changes in pig prices, and excess stock earnings were evident during the rise in pig prices; 2) 2018-2021: Cyclical logic continued to advance around price or price expectations, but the main rise started one quarter earlier, and most of the yield was completed during the pig price increase phase; 3) 2021 Q3 to now: The index market started from the early stage of production capacity, and the index diverged after the 2024Q2 pig price started.

The current pig cycle position does not match the valuation position. The core contradiction is the certainty and continuity of the rise in pig prices, and there is room for improvement in cyclical expectations. 1) Certainty of the rise in pig prices: Secondary fattening exists in the process of price increases, but it is not the main reason. Early reduction in production capacity is the core factor driving the price increase; 2) Pig price sustainability: based on counterevidence analysis, the potential removal period of this cycle is longer, and there is hesitation and insufficient motivation to increase production capacity. Continued clearance and slow production increase itself can drive the current long-lasting new cycle, rather than a short-term fast-paced small-cycle cycle.

The sector has room for valuation repair. 1) The current average market value is the same or lower than the valuation level at the time of deep cyclical losses in history. Some companies' average head market value valuations of 1,000 to 2,000 yuan are already comparable to replacement costs. Even if the industry has marginal deterioration and potential shortfalls, it is difficult to form a downward drive for valuation, and there is room for repair in valuation; 2) Judging from high point expectations, current price expectations for cycle highs are low. Under weak expectations and strong expectations, the current spot price has taken the lead in rising and has broken through high expectations. Even following the spot price, there is room for repair in the valuations of related companies.

Risk warning: risk of price fluctuations of bulk agricultural products, risk of aquaculture diseases, risk of natural disasters.