Smart Finance APP learned that Changjiang Securities issued research reports stating that with the continuous slowing down of industry capacity expansion, the continuity of this round of hog cycle prosperity is expected to continue to exceed expectations. The rise in pork prices combined with cost reduction has driven the continuous improvement in the profitability of breeding enterprises. The basic fundamentals of the hog farming industry in the third quarter have been significantly improved. The high performance resilience of breeding stocks and the long-term profitability prosperity are worth attention, showing strong bullish sentiment towards the hog farming sector. The feed industry continued to shrink in the third quarter, Guangdong Haid Group (002311.SZ) increased its market share against the trend, with solid performance growth. It is expected that with the recovery of hog and special water breeding volumes, the company's main feed business will see simultaneous volume and profit increase. Leading pet food company Guabi Pet (301498.SZ) continues its high growth under its own brand, with dual optimization of channels and product structure to support the long-term profitability improvement of the company.

Hog farming: The industry has entered a phase of high profitability, and is bullish on the sustainability of this round of profit

In the third quarter of 2024, pork prices soared to more than 20 yuan per kilogram, and the profitability of the hog farming industry entered a period of high prosperity. The average pork price in 2024Q3 was 19.42 yuan per kilogram, 16.39 yuan per kilogram in 2024Q2, and 15.97 yuan per kilogram in 2023Q3. The average self-bred and self-raised breeding profit in 2024Q3 was 500 yuan per head, 109 yuan per head in 2024Q2, and -108 yuan per head in 2023Q3. The average self-bred and self-raised profit in 2024Q3 increased by 357% and turned losses into profits compared to the previous quarter and the same period last year. Against the backdrop of significantly increased industry profits, Changjiang Securities expects high-quality listed hog breeding enterprises in the third quarter to achieve significant growth in performance. Looking ahead, due to factors such as curing and Chinese New Year stocking, the increase in fourth quarter demand relative to the third quarter is relatively rigid, and the high profitability level of the hog farming industry in 2024Q4 is worth looking forward to. In addition, due to the weak expectation of pork prices leading to slow industry capacity replenishment or even decline, and with a continuous tight supply, the industry's high profitability level may persist until 2025. Changjiang Securities believes that the high performance resilience of breeding stocks and the long-term profitability prosperity are worth attention, showing full bullish sentiment towards the hog farming sector.

Feed: The industry continues to shrink, with leading companies showing steady growth in performance

The scale of the feed industry in the third quarter continued the contraction trend from the first half of the year. In the first half of 2024, the national industrial feed production decreased by 4.1% year-on-year, with declines of 4.4% and 5.7% in July and August respectively, resulting in an expanded year-on-year decline in the scale of the feed industry. Against the background of industry capacity contraction, Guangdong Haid Group's feed sales in the third quarter increased by approximately 7% year-on-year, steadily increasing its market share. Looking at different types, poultry feed sales are expected to continue to increase by 10%-15% compared to this year, while pig feed year-on-year decline is expected to narrow to less than 5%, and aquatic feed, with standard water feed continuing to grow rapidly by 15%-20%, but high expansion feed and shrimp feed growth rates may experience a certain degree of decline. Due to the decrease in the proportion of high-profit varieties, the company's main feed business is facing temporary pressure on performance in the third quarter. Additionally, it is expected that the company's hog farming sector will contribute profits of about 0.28 billion yuan in the third quarter, considering the performance of the animal health and seed business, and the reduction in losses from aquatic farming, with the company's performance in 2024Q3 expected to grow steadily by 10% year-on-year.

Pet Food: Continued high prosperity in exports, with leading companies steadily increasing profitability in domestic sales

In July-August 2024, the export of pet food maintained a high prosperity, with the year-on-year export growth rates of cat and dog snacks to the global market at 20% and 30%, respectively. Since Q3 2023, it has maintained positive growth for more than four quarters. In the third quarter, chicken raw material costs are still at a low level, with the US dollar to Chinese Yuan exchange rate declining. The marginal decrease in exchange gains is expected to maintain growth in export profits for Yantai China Pet Foods and PetPet in the third quarter. On the domestic sales front, according to Jiuqian Consulting, the online sales growth of the pet food industry in July-August 2024 is 13%. The self-owned brand online growth of Guai Bao pets in July-August is over 25%, with Guai Bao pets adjusting their product structure since 2023. The rapid growth of high-end product series represented by Vreegat and Barf has driven an increase in domestic self-owned brand revenue growth. At the same time, double optimization of channels and product structure supports the long-term profitability improvement of the company. It is expected that the company's revenue growth in the third quarter will be above 20%, with a performance growth rate of over 30%. Yantai China Pet Foods' self-owned brand operation has steadily improved this year. According to Jiuqian data, the online sales growth of Yantai China Pet Foods' self-owned brand in July-August has exceeded 25%. In the pet sector, we highly recommend the domestically leading growing Guai Bao pets, and suggest focusing on the steady improvement of Yantai China Pet Foods in the domestic market.

Risk warning

1. The impact of sudden animal diseases has resulted in companies' performance and slaughter scale falling short of expectations; 2. Additional policy and funding support has led to the inability to reduce excess capacity in the hog farming industry as expected; 3. Short-term significant decline in pork demand; 4. Significant increase in prices of fodder raw materials.