Central China Securities released research reports stating that the industry's P/E ratio and P/B ratio are both lower than the historical valuation center, at a relatively low level. It is expected to see a valuation regression in the future and maintain an investment rating of 'stronger than the overall market' in the industry.
According to the Futu Securities APP, Central China Securities released research reports stating that in October, the breeding end was culled as planned, but the demand end was relatively weak. The overall market is in a state of oversupply, leading to fluctuating downward pig prices.
Central China Securities pointed out that currently the industry's P/E ratio and P/B ratio are both lower than the historical valuation center, at a relatively low level. It is expected to see a valuation regression in the future and maintain an investment rating of 'stronger than the overall market' in the industry. Attention is advised on Muyuan Foods (002714.SZ), Guangdong Haid Group (002311.SZ), Qiule Seed Industry (831087.BJ), Guai Bao Pet (301498.SZ), Yantai China Pet Foods (002891.SZ), and Petpal Pet Nutrition Technology (300673.SZ).
The main viewpoints of central China Securities are as follows:
Market Review: In October, the agriculture, forestry, animal husbandry, and fishery industry outperformed the benchmark index. According to Wind data statistics, in October 2024, the agriculture, forestry, animal husbandry, and fishery (CITIC) index fell by 1.10%, ranking 22nd among the 30 first-tier industries of CITIC. During the same period, the CSI 300 index fell by 3.16%, with the agriculture, forestry, animal husbandry, and fishery industry outperforming the benchmark index by 2.06 percentage points. Looking at the sub-industries, the seed industry sector had the highest increase in October, while the animal husbandry and breeding sector had the highest decline.
Hog Farming: In October 2024, the national average trading price of domestic pigs (crossbred) was 17.66 yuan/kilogram, a 6.95% month-on-month decrease, and a 16.80% year-on-year increase. From January to October 2024, the national average trading price of domestic pigs (crossbred) was 16.88 yuan/kilogram, an 11.94% year-on-year increase. The breeding end culled as planned in October, but the demand end was relatively weak. The market was in a state of oversupply, causing pig prices to fluctuate downwards. The previous reaction to the elimination of sow production capacity reflected at the level of pig farming, combined with improved cost prices, led to a comprehensive increase in the profitability level of the breeding end. It is expected that the market will enter a situation of dual growth in supply and demand in the fourth quarter of 2024, with the pig prices expected to maintain a relatively strong operation, further opening up room for rebound.
White Feather Chicken: In October 2024, the average price of white feather broiler chicken was 3.65 yuan/jin, an increase of 0.13 yuan/jin compared to the previous month, and a decrease of 0.03 yuan/jin year-on-year; the average price of white feather broiler chicken chicks was 4.36 yuan/chick, an increase of 0.75 yuan/chick compared to the previous month, and an increase of 2.17 yuan/chick year-on-year. On the supply side, the social chicken source was relatively tight in October, increasing the difficulty for enterprises to acquire, leading to operations with increased purchasing prices for chickens. The strong role of the supply side resulted in low-level fluctuating upward chicken prices. It is expected that the average chicken prices for the whole year of 2024 will increase year-on-year, coupled with the easing of cost pressures, which is expected to drive the gradual release of profit elasticity in the breeding industry, and the profitability levels of related publicly listed companies in the industry will continue to improve.
Pet Food: In September 2024, China's pet food exports amounted to 0.0256 million tons, up by +5.47% year-on-year; the cumulative exports from January to September reached 0.2426 million tons, an increase of +25.9% year-on-year. In terms of US dollars, the export value of pet food in September 2024 was 0.124 billion US dollars, up by +11.04% year-on-year; the cumulative export value from January to September was 1.098 billion US dollars, up by +21.08% year-on-year. In the short term, China's pet food export data is recovering. Due to the low base in the first half of 2023, it is expected that the fundamentals of related companies are likely to improve; in the long term, the continuous increase in the penetration rate of pet-owning households and the progress in the average consumption level of pet-owning households will be the main driving factors for the steady growth of China's pet economy.
Investment Advice: Currently, the industry's P/E ratio and P/B ratio are lower than the historical valuation center, at a relatively low level. There is potential for a valuation rebound in the future, maintaining an investment rating of 'outperform the market' for the industry. It is recommended to pay attention to Muyuan Foods (002714), Guangdong Haid Group (002311), Qiule Seed Industry (831087), Guai Bao Pet (301498), Yantai China Pet Foods (002891), PetPal Pet Nutrition Technology (300673).
Risk Warning: Large fluctuations in livestock and poultry prices, significant fluctuations in grain prices, occurrence of animal diseases; commercial application of biological breeding in China falling short of expectations; food safety issues, natural disaster events.
