CITIC Securities: The supply-side reform of live pig may have begun, and the profit elasticity of pig enterprises with "low cost +" may be fully released

According to the Zhitong Finance APP, China Merchants Securities has released a research report stating that the policy side is focusing on regulating the breeding sow capacity based on the goals of preventing involution and stabilizing CPI, which may further raise the price center for pigs in 2025-2026. The profit elasticity of pig companies with "low cost +" is expected to be fully released. Currently, the sector's valuation remains at historical bottom levels, with strong profit realization capabilities recommended for MuYuan (002714.SZ) and WENS (300498.SZ), and attention suggested for Shennong Group (605296.SH), DONGRUI GROUP (001201.SZ), and COFCO Joycome (01610). The main viewpoints of China Merchants Securities are as follows: Regulation of pig production capacity may have begun against the backdrop of preventing involution In July 2024, the Political Bureau meeting first mentioned "preventing vicious competition of involution," and "anti-involution" has become a major focus of government work this year, included in the government work report. In May, the National Development and Reform Commission (NDRC) again mentioned rectifying "involution-style" competition, and in June, the sixth meeting of the Central Financial Committee further escalated policy efforts, reiterating the need to govern low-price disorderly competition by law and regulation, promote the orderly exit of backward production capacity, and for the first time clarify specific paths for "promoting the orderly exit of backward production capacity," including establishing capacity replacement red lines, improving environmental and energy consumption standards, and strengthening financial credit constraints. Against the backdrop of anti-involution, the NDRC recently convened the top thirty pig companies in two sessions to hold meetings on anti-involution in pig production, emphasizing: 1) Stop increasing the breeding sow inventory; 2) Control the slaughter weight within 120kg; 3) Do not encourage the sale of second-breeding pig sources; etc. Policies may promote the reduction of sow production capacity From a policy perspective, the core goal is to regulate sow production capacity and boost pig prices to achieve policy objectives of stimulating CPI, exiting deflation, and boosting market confidence. Specific measures include but are not limited to window guidance, joint restrictions by the CSRC/CBIRC on direct and indirect financing in regions, environmental protection, etc., which may be progressively implemented based on real-time regulatory effects. 2) From the perspective of pig companies, after experiencing rapid expansion in the early stages, the current debt-to-asset ratio remains at historically high levels. According to announcements from listed pig companies, in Q1 2025, the debt-to-asset ratio of 16 listed pig companies still exceeds 60%. Group pig companies may also have the motivation to cooperate in reducing production capacity to exchange quantity for price, alleviating pressure on the debt side. Risk Warning: Policies may fall short of expectations; sudden large-scale uncontrollable epidemics; pig price fluctuations exceed expectations; sales/costs of listed pig companies do not meet expectations