According to a research report released by GTJA, the current position of the pig cycle and sector valuation do not match. The upward trend of the breeding sector comes from the valuation repair and the repair of future cycle expectations. At this stage, the breeding sector is recommended based on the beta perspective, and the recommended symbols are Muyuan Foods (002714.SZ) and Wens Foodstuff Group (300498.SZ).

GTJA's main opinions include:

Investment recommendation: The current position of the pig cycle and sector valuation do not match. The upward trend of the breeding sector comes from the valuation repair and the repair of future cycle expectations. At this stage, the breeding sector is recommended based on the beta perspective, and the recommended symbols are Muyuan Foods and Wens Foodstuff Group.

Breeding stock review: The cycle logic is gradually advancing, and the 2024Q2 pig price is deviating from the index. 1) 2015-2016: The stock price changes synchronously with the pig price, and the stock has obvious excess returns during the process of pig price increase; 2) 2018-2021: The cycle logic continues to advance around prices or price expectations, but the start time of the main upward trend has been advanced by one quarter, and most of the returns are still completed during the period of rising pig prices; 3) 2021Q3-present: The index trend has started since the early stage of capacity reduction, and the pig prices and index are deviating after the start of 2024Q2 pig prices.

The current position of the pig cycle does not match the valuation position. The core contradiction is the certainty and sustainability of pig price increase, and there is room for upward revision of cycle expectations. 1) The certainty of pig price increase: secondary fattening exists in the process of price increase, but it is not the main reason. The core factor driving the price increase is the previous capacity reduction; 2) The sustainability of pig price increase: based on the reductio ad absurdum analysis, the potential elimination time of this cycle is longer, and the increase in production capacity is hesitant and lacks momentum. The continued elimination and slow increase in production capacity itself can promote the current durable new cycle, rather than short-term rapid small cycle circulation.

There is room for valuation repair in the sector. 1) The current average market value per head is the same as or lower than the valuation level during the deep losses in history. The market value of some companies with 1000-2000 yuan per head has already been reset to the cost, and even if there are marginal deterioration and potential bearish factors in the industry, it is difficult to constitute downward valuation driving. There is room for valuation repair; 2) From the perspective of high point expectation, the current price expectation for the cycle high point is low. Under weak expectation and strong reality, the spot price has already led the rise, and has exceeded the expectation of the high point. Even if it follows the spot price, the valuation of relevant companies also has room for repair.

Risk warning: Price fluctuation risk of bulk agricultural products, epidemic risk of breeding, risk of natural disasters.