18 January 2026 | 6:29PM HKT Equity Research Muyuan Foods (002714.SZ) Leading low cost producer; strong free cash flow generation outlook; Maintain Buy 002714.SZ 12m Price Target: Rmb67.00 Price: Rmb47.33 Upside: 41.6% We revise down recurring net profit for Muyuan by 52% in 2025E, 21% in 2026E, and 14% in 2027E, to incorporate lower domestic benchmark hog pricing, and 1H25/3Q25 results. We expect earnings to recover in 2026E, driven by improving hog pricing from the bottom. Muyuan's competitive low-cost po ...

Summary of the Conference Call on the Hog Industry Industry Overview - The conference call focused on the **hog industry** in China, discussing market developments and price outlooks for hogs [2][3]. Key Points Capacity Trends - **Sow Herd Capacity Cuts**: The reproductive sow herd began to decline in July 2025, with a significant acceleration in cuts noted in October 2025 due to mounting losses. The sow inventory fell over **1% month-over-month** to **39.9 million heads** [3][4]. - **Small-Scale Producers**: Responsible for approximately **28%** of hog output in 2025, small-scale producers are the main contributors to capacity reductions. Large-scale producers also began to cut capacity as losses increased [3]. Cost Trends - **Production Costs**: Costs have decreased in recent years, attributed to lower feed costs and improved efficiency. Top-tier companies operate at an average cost of **Rmb 12–13/kg**, while smaller producers operate at **Rmb 13–14/kg**. With hog prices dropping to **Rmb 11.6/kg** in October and November, the industry has entered a loss-making phase [4]. Price Outlook - **Hog Prices**: Experts predict that hog prices will remain under pressure until mid-2026 due to persistent oversupply. The Ministry of Agriculture's target of **39 million heads** by year-end 2025 is deemed achievable. An inflection point for prices is expected in the second half of 2026, reflecting a typical **10-month lag** between sow herd cuts and market supply contraction [5]. Industry Consolidation - Continued consolidation in the industry is anticipated, with small-scale producers exiting the market. Companies with cost advantages are expected to outperform during this period [5]. Key Beneficiaries - **Muyuan Foods and Wens Foodstuff Group**: Both companies are well-positioned to benefit from the upcoming hog price upcycle, with Muyuan being highlighted as the top pick due to its cost advantage [6]. Risks Muyuan Foods - Risks include limited production cost savings due to rising feed costs, slower-than-expected hog destocking, lower-than-expected sales volume growth, and delays in the development of its downstream slaughtering business [8]. Wens Foodstuff Group - Risks involve limited cost savings from swine diseases and rising feed costs, sluggish hog prices due to slow de-capacity, lower demand from restaurants, and lower-than-expected average selling price growth of yellow feather broilers [9]. Conclusion - The hog industry in China is facing significant challenges with capacity cuts and price pressures expected to continue until mid-2026. However, companies like Muyuan and Wens are positioned to capitalize on future price recoveries, albeit with notable risks that could impact their profitability.

Core Insights - Palm Valley Capital Fund reported a 2.35% appreciation in Q3 2025, underperforming the S&P SmallCap 600's 9.11% gain and the Morningstar Small Cap Total Return Index's 7.99% rise [1] - The Fund's cash equivalents increased from 73.5% to 74.1% during the quarter, indicating a cautious investment strategy [1] - Small-cap stocks outperformed large caps due to expectations of Federal Reserve easing and reduced tariff concerns impacting corporate profits [1] Company Analysis: Seaboard Corporation (AMEX:SEB) - Seaboard Corporation's stock experienced a one-month return of -8.82% but gained 13.90% over the past 52 weeks, closing at $3,536.60 with a market capitalization of $3.392 billion on October 7, 2025 [2] - The Fund sold its investment in Seaboard Corporation during Q3 2025, having acquired it at a significant discount to tangible book value, which increased to nearly 50% in early 2025 [3] - Seaboard operates in cyclical industries, showing volatility in operating results, yet has consistently generated profits across various business cycles [3] - The company is actively modernizing and expanding its infrastructure, utilizing cash flows for aggressive investments [3] Investment Sentiment - Seaboard Corporation is not among the top 30 most popular stocks among hedge funds, with 19 hedge fund portfolios holding it at the end of Q2 2025, a slight decrease from 20 in the previous quarter [4] - While Seaboard is recognized for its potential, the analysis suggests that certain AI stocks may offer better upside potential with lower downside risk [4]