Zhitong Financial APP learned that Tianfeng Securities released a research report stating that under the situation where the previous capacity reduction has fully driven the reversal of pig prices and the progress of replenishing farms is limited, the industry has considerable profit space given the extended cycle length. Strong cost control companies with high growth elasticity will significantly emerge as alpha stocks. Additionally, the valuation is currently at a relatively low level and pig plate value highlights.

For the targets, large pigs first recommend Wens Foodstuff Group Co. Ltd. (300498.SZ), Muyuan Foods Co. Ltd. (002714.SZ), and then suggest focusing on New Hope Liuhe Co. Ltd. (000876.SZ); small pigs recommend focusing on Zhejiang Huatong Meat Products Co. Ltd. (002840.SZ), Shennong Group Inc. (605296.SH), Tecon Biology Co. Ltd. (002100.SZ), Leshan Giantstar Farming & Husbandry Corporation (603477.SH), Tangrenshen Group Co. Ltd. (002567.SZ), Dekang Agriculture and Animal Husbandry Co. Ltd. (02419), Hunan New Wellful Co. Ltd. (600975.SH), etc.

Tianfeng Securities' main points are as follows:

Supply and demand outlook: the difference between supply and demand is amplified, and the big cycle is valued.

1)Supply side: ① The theoretical supply of live pigs continues to decrease. The maximum cumulative removal of national sows in this round is about 11% (as of May 2024). In the last cycle (2021-22), the cumulative maximum removal rate of the Ministry of Agriculture corresponded to a high pig price of 28 yuan/kg+ (9%), and the elimination and optimization of three-element sows greatly compensated for the actual capacity reduction in 21 years, while industry efficiency has not shown a significant improvement in the past two years. This year, the pressure on the supply of live pigs may continue to ease. ②Normal live inventory. This year, most of the industry's second breeding is for rolling out (the industry is cautious about pig prices, and the profit level of second breeding is ideal). As of July 11th, the proportion of live pigs above 150kg accounted for only 4.89%, which is at a low level in recent years, and the inventory of large pigs is in a normal state. ③ Limited frozen pressure. Since October 2023, the monthly import volume of pork has been lower than 0.1 million tons/month, which is the lowest level in nearly four years. From the perspective of the frozen product inventory rate of slaughterhouses, the frozen product inventory rate of slaughterhouses in June 2024 was at the lowest level in the same period in nearly four years, and frozen pressure is currently limited.

2)Demand side: ① Limited substitution of other meat proteins. Pork is still the main way for Chinese residents to take in meat protein, and the proportion of beef is relatively low. From the comparison of the pig slaughter volume and the historical cycle during the recent decline in beef prices, the demand (slaughter volume) has not been significantly affected. Therefore, the bank believes that the impact of the decline in beef prices on pork consumption demand is relatively limited. ②Seasonal growth in demand in the second half of the year. Looking back at history, demand shows seasonal changes during the year, the first quarter usually has weaker demand, the second and third quarters show marginal improvement, and the fourth quarter reaches the annual high point of demand.

3)Replenishing farms: At present, the replenishment action is slow. According to the previous Tianfeng Agriculture questionnaire and related data, the bank believes that the reasons are mainly subjective and objective: ①Subjective factors: Regardless of the results of the Tianfeng Agricultural questionnaire or the situation of futures and binary sow prices, the industry side is relatively cautious about pig price expectations, thereby hindering the enthusiasm for replenishing farms. ②Objective factors: The industry suffered severe capital losses in the previous period, and short-term profit recovery is difficult to solve the tight capital situation of the industry, coupled with difficulty of financing, making the industry's replenishment sentiment weaker.

4)Outlook for pig prices: The trend of pig prices reversing this year is clear. As of July 16th, the average national pig price was 19.31 yuan/kg. With the continuous expansion of the supply and demand gap, there is considerable room for pig price increases. In addition, cautious replenishment in the industry may be beneficial to extending the current pig cycle prosperity time.

Risk warning: risks of breeding diseases; price fluctuation risk; market system risk; slower-than-expected recovery of downstream consumption.