China’s poultry industry_2025 outlook_ Supply pressure persists, but low costs may fuel an earnings improvement

Summary of the Equity Research Report on China's Poultry Industry Industry Overview - Industry: China's Poultry Industry - Focus: Chicken meat supply and pricing dynamics for 2025 Key Points Supply and Pricing Outlook - Supply Growth: Chicken meat supply growth in 9M24 exceeded estimates, with expectations for continued supply pressure into 2025 [2][15] - Price Trends: Anticipated decline in average selling prices (ASP) for chicken meat in 2025, influenced by increased supply and lower raw material costs [2][31] Company-Specific Insights - Sunner Development: - Target Price (TP) revised to RMB19.40 from RMB21.50, indicating a 34% upside potential [2][47] - 2024e net profit estimate reduced to RMB692 million, down 60.6% from previous estimates [2][39] - Expected 2025e net profit of RMB1,105 million, reflecting a significant downward revision [2][39] - Wellhope: - TP increased to RMB9.10 from RMB8.30, suggesting a 7% upside [2][47] - 2024e net profit estimate adjusted to RMB558 million, with a focus on improving profitability in 2025-26e [2][39] Market Dynamics - Avian Flu Impact: Recent detection of avian flu in Oklahoma has raised market uncertainties regarding poultry imports, contributing to a temporary stock price rally for companies like Sunner and Wellhope [2][17] - Cost Structure: Declining raw material prices are expected to improve breeding profitability, with breeding costs projected to fall by 5% year-on-year in 2025 [2][32] Earnings Estimates and Valuation - Revised Earnings Estimates: Adjustments made to 2024-26 earnings estimates due to overestimations of chicken meat ASP and capacity expansion [2][39] - Valuation Methodology: Utilization of a sum-of-the-parts (SOTP) approach for valuation, with a focus on price-to-book (PB) and price-to-earnings (PE) multiples [2][47] Risks and Considerations - Key Risks: - Slower-than-expected development of the food business [2][51] - Potential avian flu outbreaks leading to decreased poultry consumption and prices [2][51] - Unexpected increases in raw material prices [2][51] Conclusion - The poultry industry in China is facing supply pressures and declining prices, but companies like Sunner and Wellhope are positioned to benefit from lower breeding costs. The revised target prices reflect a cautious yet optimistic outlook for earnings growth in 2025, despite the risks posed by market dynamics and potential health crises.