According to the Zhitong Finance APP, China Merchants Securities released a research report stating that from an industry perspective, the growth of sow production capacity in 2024 will be slow, corresponding to a relatively limited increase in hog supply in 2025. Pig prices are expected to perform better than market expectations. From the breakdown of the performance of listed pig companies in Q1 2025, the variance in commodity pig breeding costs among different industry entities remains significant. High-quality pig companies are expected to achieve considerable profits and continue to repair their balance sheets due to their low-cost advantages. From a company perspective, corresponding to the slaughter volume in 2025, the average market value of major listed pig companies has returned to historical low levels, highlighting the investment value of high-quality pig companies. In terms of stock selection, the firm primarily recommends Muyuan and Wens, which have significant cost advantages and strong performance realization capabilities, and suggests paying attention to Shennong Group and Dongrui Group.

The main views of China Merchants Securities are as follows:

Q1 2025 pig prices are not weak in the off-season, and listed pig companies increase slaughter volume

From an industry perspective, in Q1 2025, the enthusiasm for slaughtering before the festival alleviated some of the supply pressure after the festival, and pig prices overall performed well in the off-season. The national average price of live pigs was 15.0 yuan/kg, up 3.9% year-on-year and down 9.6% month-on-month, while piglet prices benefited from the peak season for restocking, resulting in overall good profitability. In terms of listed pig companies, in Q1 2025, the national pig slaughter volume reached 195 million heads, a slight increase of 0.1% year-on-year, with a relatively limited increase in supply. However, the production capacity of listed pig companies is still in the release phase, with 16 listed pig companies collectively slaughtering 47.59 million pigs, up 26% year-on-year and up 1.9% month-on-month, accounting for 24% of the national pig slaughter volume.

Major listed pig companies achieve turnaround, and debt-to-asset ratio steadily declines month-on-month

In Q1 2025, major listed pig companies achieved a turnaround, mainly due to: 1) pig prices performing well in the off-season; 2) continued decline in feed prices and improvements in production efficiency driving further optimization of industry costs; 3) against the backdrop of good profitability for piglets, the proportion of piglet sales for listed pig companies significantly increased. In Q1 2025, the 16 listed pig companies collectively earned 8.2 billion yuan, achieving operational cash flow of 13.1 billion yuan, which led to a further decline in the debt-to-asset ratio by 0.2 percentage points to 60%. However, due to cautious expectations regarding future pig prices, the construction projects and capital expenditures of major listed pig companies continued to decline, down 41% and 25% year-on-year, respectively.

Risk Warning: Fluctuations in livestock and grain prices beyond expectations, sudden large-scale uncontrollable diseases, extreme weather, major food safety incidents, and sales/costs of listed companies not meeting expectations, etc