Summary of Key Points from the Conference Call Transcript Industry Overview - **Industry**: US Hog and Pork Industry - **Key Focus**: Analysis of farrow-to-finish operations and hog prices in the US market Core Insights and Arguments 1. **Profitability Trends**: - The US farrow-to-finish sector experienced a profitable Q425 with an operating profit of approximately US$10/head on average over the past decade. - After facing losses exceeding US$20/head in Q422-Q124 due to rising feed prices, the sector rebounded with profits of US$21/head on average in Q224-Q325, driven by lower feed costs and higher hog prices. - Specific profits reported: US$11/head in Q125, US$27/head in Q225, US$51/head in Q325, and continued profits of US$34/head in Oct 2025 (+263% YoY) and US$16/head in Nov 2025 (+9% YoY) despite seasonal weaknesses [2][6][27]. 2. **Hog Price Outlook**: - In 2025, live equivalent lean hog prices averaged around US$69/cwt (+8% YoY), with quarterly averages of US$64/cwt (+10% YoY), US$70/cwt (+4% YoY), US$77/cwt (+17% YoY), and US$64/cwt (+2% YoY) in Q425. - The USDA forecasts a slight decrease in average hog prices to US$67/cwt (-3% YoY) in 2026, with quarterly expectations of US$64/cwt (+1% YoY), US$70/cwt (+0% YoY), and US$71/cwt (-8% YoY) [3][11]. 3. **Feed Costs Analysis**: - Feed costs, which constitute about 60% of total costs for farrow-to-finish operations (26% corn, 11% soybean meal), saw a significant decline contributing to improved hog farming returns in 2024-25. - Feed costs decreased by -13%/-8%/-7% YoY in Q1/Q2/Q3 2025 and -5% YoY in Oct-Nov 2025. However, prices for corn and soybean meal have stabilized after bottoming out in late 2024, with expectations of less cost relief for hog farming in 2026 [4][18]. Additional Important Insights 1. **Market Dynamics**: - The turnaround in hog farming returns is attributed to lower feed costs and higher hog prices, indicating a recovery phase post the adverse impacts of the Russia-Ukraine war on feed prices [2][6]. 2. **Risks Identified**: - Key risks for the sector include price volatility of agricultural commodities, disease outbreaks, food safety regulations, and increased environmental protection costs due to stricter government regulations [27]. 3. **Future Projections**: - The expectation of marginally higher supply in 2026 is likely to exert downward pressure on hog prices, indicating a cautious outlook for the upcoming year [3][11]. This summary encapsulates the essential findings and projections regarding the US hog and pork industry, highlighting profitability trends, price forecasts, and associated risks.

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.

Investment Rating - The report maintains a "Buy" rating for Haid Group with a target price of RMB67.00, indicating a potential upside of 14.4% from the current price of RMB58.59 [5][9][32]. Core Insights - The hog weight reduction has had a limited impact on prices in 2025, with an increase in average hog weight observed in May 2025. This trend is driven by higher profits from larger hogs compared to smaller ones [3][10]. - Stable sow inventories are reported, with a slight month-on-month increase of 0.1% to 40.42 million heads as of the end of May 2025. This stability suggests an abundant hog supply, contributing to a downward trend in hog prices [4][13]. - The Hog Breeding Index has risen approximately 5% since the end of May 2025, indicating profitability in hog breeding during the first half of 2025, which is expected to maintain or increase sow inventories [4][13]. Summary by Sections Hog Weight and Prices - The average hog weight in China increased in May 2025, driven by profit motivations. Farmers are unlikely to comply with directives to reduce hog weight if larger hogs yield higher profits [3][10]. - A reduction in hog weight has led to increased supply in early June 2025, which may have pressured hog prices. However, early sales by large-scale farmers could help ease oversupply in July, potentially leading to price improvements [12][13]. Sow Inventories and Production Indicators - Sow inventories remained stable in the first half of 2025, with significant improvements in production indicators, including an 11% year-on-year increase in market pigs per sow and a 6% increase in piglets per sow [4][24]. - The report suggests that the hog price is on a downward trend for 2025-26, as stable sow inventories act as a leading indicator for supply [4][13]. Company Preferences - Haid Group is preferred due to expected improvements in feed sales volume in both domestic and international markets, with a likely increase in gross profit per ton in 2025 [5][9]. - Muyuan Foods and Wens Foodstuff Group are rated as "Hold," with target prices of RMB39.40 and RMB16.60, respectively, indicating potential downsides of 6.2% and 2.8% from current levels [6][32].

Investment Rating - The report maintains a positive outlook on cement, copper, and incrementally positive on steel and aluminium, while holding a negative view on coal and lithium [1][9]. Core Insights - Earnings estimates for China commodities have been refreshed, reflecting mark-to-market price changes for 1H25, with target price changes ranging from -13% to +12% [1][9]. - The report highlights a positive outlook for hog pricing/margin in 2H25E due to improved supply discipline [1][9]. Summary by Sector Steel - Earnings forecasts for Baosteel and Angang have been revised up by 1-4% for 2025E, while the loss-making forecast for Maanshan has been cut by 11% [10]. - Maintain Buy on Baosteel with a new target price of Rmb8.8/sh [10]. Coal - The thermal coal market is expected to remain balanced in 2025E, with a decline in demand driven by renewable energy expansion [11]. - Earnings forecasts for Shenhua, Chinacoal, and Yankuang have been cut by 2-11% for 2025E and 10-27% for 2026-27E [12]. Cement - Unit gross profit forecasts for cement have been revised down by Rmb2-6/t for 2025E, but a positive view is maintained for 2H25E due to supply discipline [13]. - Earnings estimates for CNBM, WCC, BBMG-H/A, Conch-H/A, and CRBMT have been cut by 6% to 18% for 2025E [14]. Aluminum - Earnings estimates for Hongqiao have been revised up by 5-27% for 2025-27E, reflecting higher industry spread forecasts [17]. - Maintain Neutral on Hongqiao with a target price of HK$12.5/sh [17]. Copper - The benchmark copper price forecast has been revised to an average of US$4.20/lb in 2025E and US$4.61/lb in 2026E [18]. - Earnings estimates for CMOC-H/A, JXC-H/A, and MMG have been cut by 1-18% for 2025-26E [18]. Lithium - Earnings estimates for Ganfeng, Tianqi, and Yongxing have been cut by 3-4% for 2025E due to lower lithium prices [20]. - Yongxing's 2027E earnings have been cut by 37% based on flat lithium price forecasts [20]. Paper - Earnings forecasts for ND Paper have been revised up by 3-4%, while Sunpaper's earnings have been cut by 3% [22].