According to a research report released by Huaxi Securities, as of June 25, 2024 based on piggy-to-piggy data, the Q1/Q2 pig price was 14.44/16.20 yuan/kg respectively, with a year-on-year change of -3.86%/+13.02%. Unexpectedly, the Q2 pig price has risen significantly. With the rise in pig prices and improvement in fundamentals, profits have been realized in both self-breeding and purchased piglet breeding, with per capita profits expected to gradually expand with further cost optimization and pig prices. At present, the valuation level is relatively low, and the certainty of cyclical reversal has increased. It is recommended to continue to focus on high quality targets with good financial status, proper cost control, and high future slaughter flexibility.
Main views of Huaxi Securities:
Pig prices have unexpectedly risen, boosting industry prosperity.
Based on piggy-to-piggy data, as of June 25, 2024, the Q1/Q2 pig price was 14.44/16.20 yuan/kg respectively, with a year-on-year change of -3.86%/+13.02%. Unexpectedly, the Q2 pig price has risen significantly, with a monthly increase of 4.04 yuan per kilogram from May 10 to June 12, 2024, the rise was fast and unexpected. With the improvement in pig prices, the industry has achieved a turnaround from losses to profits. According to Wind data, self-bred pigs have been profitable since the week of May 24, 2024, with per capita profits of 58.21 yuan/head, and further expanding to 413.26 yuan/head as of June 14. As of June 21, as pig prices surged and fell, breeding profits shrunk to 382.68 yuan/head, and purchased piglets in Q1 had already become profitable. With the rise in Q2 pig prices, profits from purchased piglet breeding continued to expand, reaching 366.56 yuan/head as of June 21. With the increase in pig prices, the industry's fundamentals have improved significantly, and most listed pig enterprises can achieve a turnaround from losses to profits in the second quarter.
With the improvement in downstream breeding industry fundamentals, upstream feed and animal protection industries are expected to improve. Currently, grain prices are weak and fluctuating at high levels. Due to the recovery in downstream pig prices, the number of breeding sows in May has turned positive on a month-on-month basis. Although pig prices have fallen recently, they are still above the breeding cost line, and with the reduction in supply and the peak demand season of breeding sows in the second half of the year, it is expected that pig prices will improve year-on-year, and production capacity is expected to gradually recover, boosting demand for feed raw materials.
In addition, we still need to pay attention to the drought in the north in the future. According to the Ministry of Agriculture and Rural Affairs, since June, the Huanghuaihai region has been experiencing high temperatures and less rainfall. On June 17, the Ministry of Agriculture and Rural Affairs launched a level three emergency response to drought in Hebei, Shanxi, Shandong, and Henan provinces. The Huanghuaihai Plain is an important grain-producing area in China, and we should pay attention to the impact of extreme weather on crop production.
Pig prices have bottomed out and rebounded, benefiting both upstream and downstream sectors.
Feed sector: With the recovery of downstream prices and profits for breeding companies, production capacity has gradually recovered, and feed demand is expected to bottom out and rise. The feed sector will benefit from cost reductions and improved downstream breeding profitability, with ton profits expected to improve further in Q2. We remain optimistic about pig prices in the second half of the year, and feed companies will also benefit from rising pig prices and production capacity recovery. In terms of specific targets, feed leader Guangdong Haid Group (002311.SZ), New Hope (000876.SZ), and others are expected to benefit significantly.
Animal protection sector: As pig prices rebounded in May, breeding companies achieved a profit improvement, which increased the enthusiasm of breeding households to use animal protection products, and increased downstream stock and demand for animal protection products. With the recovery in pig prices, the hike in animal protection product prices, and the need for animal protection products have all been positively impacted. Huaxi Securities believes that Q2 animal protection companies are expected to see improved performance on a quarterly and annual basis. In terms of specific targets, Jinhe Biotechnology (002688.SZ), Jinyu Bio-technology (600201.SH), Pulike Biological Engineering, Inc. (603566.SH), and China Animal Husbandry Industry (600195.SH) are all expected to benefit significantly.
Hog farming sector: With the rise in pig prices and improvement in fundamentals, profits have been realized in both self-breeding and purchased piglet breeding, with per capita profits expected to gradually expand with further cost optimization and pig prices. At present, the valuation level is relatively low, and the certainty of cyclical reversal has increased. It is recommended to continue to focus on high quality targets with good financial status, proper cost control, and high future slaughter flexibility. In terms of specific targets, Shenzhen Kingkey Smart Agriculture Times (000048.SZ), Hunan New Wellful (600975.SH), Tangrenshen Group (002567.SZ), Zhejiang Huatong Meat Products (002840.SZ), and others are all expected to benefit significantly.
According to a research report released by Huaxi Securities, as of June 25, 2024 based on piggy-to-piggy data, the Q1/Q2 pig price was 14.44/16.20 yuan/kg respectively, with a year-on-year change of -3.86%/+13.02%. Unexpectedly, the Q2 pig price has risen significantly. With the rise in pig prices and improvement in fundamentals, profits have been realized in both self-breeding and purchased piglet breeding, with per capita profits expected to gradually expand with further cost optimization and pig prices. At present, the valuation level is relatively low, and the certainty of cyclical reversal has increased. It is recommended to continue to focus on high quality targets with good financial status, proper cost control, and high future slaughter flexibility. In terms of specific targets, Shenzhen Kingkey Smart Agriculture Times (000048.SZ), Hunan New Wellful (600975.SH), Tangrenshen Group (002567.SZ), Zhejiang Huatong Meat Products (002840.SZ), and others are all expected to benefit significantly.
Seed sector: Currently, grain prices are weak and fluctuating at high levels, and it is necessary to continue to pay attention to the development of the drought in the north. With the advancement of the commercialization of transgenic technology under the background of food security, transgenic seeds have a revolutionary role in improving yields by enhancing resistance to insects and diseases. Against the backdrop of ensuring food security, the promotion and penetration rate of transgenic seeds is expected to increase, and the prosperity of the planting industry chain is expected to improve. In terms of target selection, planting ends such as Beidahuang and Suken Nongfa will benefit, and seed industries such as Beijing Dabeinong Technology Group (002385.SZ), Yuan Longping Hi-Tech Agriculture (000998.SZ), Shandongdenghai Seeds (002401.SZ), Winall Hi-Tech Seed (300087.SZ), Hefei Fengle Seed (000713.SZ), Wanxiang Doneed (600371.SH) and others are expected to continue to benefit.
Risk warning: Risk of changes in industrial policies; risk of natural disasters and pest infestations; risk of epidemic diseases; risk of natural disasters; risk of fluctuating prices of raw materials.