Summary of the Equity Research Report on China's Hog Industry Industry Overview - The report focuses on China's hog industry, specifically the trends in hog prices and sow inventories, and the financial performance of major hog breeding companies [2][3][4]. Key Points and Arguments Hog Price Trends - Hog prices have been on a downtrend, decreasing from over RMB 16/kg to approximately RMB 13/kg year-to-date [11][12]. - The expectation is for hog prices to continue declining year-over-year in the first half of 2026 due to stable sow inventories and improved production indicators [4][29]. - The outlook for the second half of 2026 is uncertain; if production indicators improve significantly, hog supply may increase, leading to further price declines [5][30]. Sow Inventory Management - As of the end of August, sow inventories were reported at 40.38 million, down 0.1% month-over-month, but still above the target of 39 million set by the Ministry of Agriculture and Rural Affairs (MARA) [3]. - The reduction of sow inventories is expected to accelerate as hog breeding enters a loss-making phase [3][27]. - Specific reduction goals for large-scale hog breeding companies have been set by MARA, indicating a push for better inventory management [27][28]. Financial Performance of Companies - Earnings estimates for major hog breeding companies have been revised downward due to lower average selling prices (ASP) for hogs [6][48]. - Target prices for companies such as Tecon and Dabeinong have been lowered, while Muyuan's valuation methodology has shifted to EV/EBITDA to better reflect profitability [6][48]. - The report highlights a preference for Haid Group due to its rapid growth in overseas markets, while maintaining a cautious stance on the overall hog breeding sector [55]. Company-Specific Insights - **Muyuan Foods**: Target price reduced from RMB 7.10 to RMB 6.80; net profit estimates lowered by 5.7% for 2025 [6][49]. - **Wens Foodstuff**: Target price lowered to RMB 16.60; net profit estimates reduced by 32.3% for 2025 [6][49]. - **Tecon Biology**: Target price adjusted to RMB 6.80; net profit estimates lowered by 9.7% for 2025 [6][49]. - **Dabeinong**: Target price reduced to RMB 4.90; net profit estimates lowered by 23% for 2025 [6][49]. Market Dynamics - The hog breeding index has outperformed the CSI300 index, indicating stronger market performance despite declining hog prices [3][12]. - The report notes that while large-scale companies are expected to implement sow reduction policies, smaller farmers may resist exiting the market if they are optimistic about future prices [31]. Risks and Considerations - The report emphasizes the mixed impact of policies aimed at reducing sow inventories, suggesting that while production growth may slow, the balance between sow reduction and capacity utilization will be challenging for companies with aggressive growth plans [31][55]. - The potential for oversupply remains a concern, with expectations that hog prices may not recover sharply due to ongoing market dynamics [53][55]. Additional Important Insights - The report includes detailed financial projections for major companies, highlighting changes in revenue, costs, gross profit, and net profit estimates for 2025-2027 [49][54]. - It also discusses the implications of feed price declines on cost improvements for hog breeding companies [18][19]. This comprehensive analysis provides a detailed overview of the current state and future outlook of China's hog industry, emphasizing the importance of inventory management and market dynamics in shaping financial performance.