At the end of Q3, the average debt-to-asset ratio of listed pig companies remained high at 61.5%. Additionally, winter is a peak period for outbreaks in the north, and as of now, the price of hogs is also lower than in Q3. It is expected that the replenishment enthusiasm in Q4 will be weaker than in Q3, and this weakness will continue.
Zhichun Finance APP learned that huaan released a research report stating that at the end of Q3, the average debt-to-asset ratio of listed pig companies remained high at 61.5%. Moreover, winter is a peak period for outbreaks in the north, and as of now, the price of hogs is also lower than in Q3. It is expected that replenishment enthusiasm in Q4 will be weaker than in Q3, and this enthusiasm will continue to weaken; Yungyi Consulting and shanghai ganglian e-commerce holdings announced that in October, the number of breeding sows increased by 0.2% and 0.39% month-on-month, respectively, while in September, the increase was 0.64% and 0.53%. The zeal for replenishment in October weakened. According to calculations, the average number of breeding sows reported by the statistics bureau in 2024 is estimated to decrease by about 4.5% compared to 2023. The price of pork in 2025 is expected to be strongly supported, and the costs are basically certain to decrease compared to 2024. The net profit of breeding pigs is expected to rise year-on-year, as the hog output of listed pig companies continues to grow, making the hog sector likely demonstrate performance realization logic.
Huaan Securities' main opinions are as follows:
The slow recovery of production capacity, with leading hog companies being the main force in new production capacity.
From official data, at the end of Q2 and Q3 in 2024, the number of breeding sows was 40.38 million and 40.62 million, respectively, showing a slight increase of 1.2% and 0.6% month-on-month. Although the average price of hogs in Q3 reached 19.39 yuan/kg, the enthusiasm for replenishment remained weak. From the industry data, the recovery of hog production capacity since 2024 has also been significantly weaker than in 2022. As of the end of September 2024, the average debt-to-asset ratio of 20 listed pig companies remained high at 62%, and the scale of equity financing completed by listed pig companies has been limited, with the industry's financial pressure continuing to be at historically high levels.
By the end of June 2024, muyuan foods and wens foodstuff group had breeding sow numbers of 3.309 million and 1.65 million, respectively, compared to the end of March, showing an increase of 0.167 million and 0.1 million, respectively. Together, the two companies added approximately 0.267 million, accounting for 58% of the national increase of 0.46 million breeding sows in Q2. By the end of September 2024, zhengbang and shennong had breeding sow numbers of 0.257 million and 0.114 million, respectively, with increases of 0.041 million and 0.016 million compared to the end of June. Together, these two companies added approximately 0.057 million, accounting for 23.8% of the national increase of 0.24 million breeding sows in Q3.
In 2025, the price of pork is expected to receive support, and the performance realization period for listed pig companies is approaching.
From 2017 to 2023, the annual average inventory of breeding sows in the country was highly negatively correlated with the average annual price of hogs one year later, except for 2022, which is considered to be due to an overly high proportion of inefficient sows in 2021, leading to significant data distortion in hog farming production efficiency in 2022. According to data from the National Bureau of Statistics, Huaan assumes that the inventory of breeding sows will increase by 0.5%-2% quarter-on-quarter in Q4 2024, corresponding to an average inventory decrease of 4.4%-4.8% in breeding sows for 2024 compared to 2023. Based on data from Yongyi Consulting and Shanghai Ganglian, Huaan assumes that the inventory of breeding sows will increase by 1% month-on-month in November and December 2024, corresponding to an average inventory decrease of 0.56% and 2.36% in breeding sows for 2024 compared to 2023.
Inferring from the annual inventory of breeding sows, the price of hogs in 2025 is expected to receive strong support. The cost of hog farming for publicly listed companies in 2024 is in a downturn, and a decline in costs for hog companies in 2025 compared to 2024 is basically confirmed, with net profits for hogs expected to rise year-on-year. As the number of hogs being sold continues to grow, the performance of major listed pig companies in 2025 is expected to show positive growth year-on-year.
The consumption peak season is anticipated to stabilize and rebound hog prices.
In this cycle from December 2022 to March 2024, there has been a cumulative reduction of 9.1%. In April 2024, the Ministry of Agriculture announced a further 0.1% decrease in the inventory of breeding sows, with the overall reduction exceeding that of 2021-2022, having decreased by 12.5% compared to the inventory in June 2021. The price of pork is currently in an upward cycle. After the national hog price reached its peak for the year on August 11, the prices exhibited a fluctuating downward trend.
Huaan believes that the significant adjustment in hog prices is influenced by the continuous slaughter of heavy pigs and a short-term decline in the breeding cycle. Since late September 2024, the price ratio of meat pigs has stabilized above 1.6, remaining basically the same as the same period in 2023. On November 7, the difference in the price of lean meat was 5.03 yuan/kg, higher than the 4.12 yuan/kg in the same period last year, indicating that pork consumption has not continued to weaken; on November 10, 2024, the utilization rate of fattening barns fell year-on-year by 12%-43% and week-on-week by 5%-23%, with the price difference for standard pigs remaining high. With the arrival of the consumption peak season, hog prices are expected to stabilize and rebound.
According to the forecast for hog slaughter volumes in 2024, Wens has a market cap of 2727 yuan per head, Muyuan 3290 yuan, Leshan Giantstar Farming & Husbandry Corporation 3517 yuan, Huaitong 2533 yuan, New Hope Liuhe 2953 yuan, Tecon Biology Co.Ltd 1667 yuan, and Cofco Joycome 1644 yuan, with many first and second tier pig companies' valuations at historic low levels. Continue to recommend the hog farming sector, focusing on stocks like Wens Foodstuff Group (300498.SZ), Muyuan Foods (002714.SZ), Shennong Group (605296.SH), and Tecon Biology Co.Ltd (002100.SZ).
Risk warning
The epidemic situation has caused hog prices to remain at high levels for a shorter duration than expected.