China’s hog industry_2025 outlook_ Hog price downtrend

Summary of the Equity Research Report on China's Hog Industry Industry Overview - The report focuses on China's hog industry, specifically the outlook for hog prices in 2025, which is expected to be on a downtrend [1][9]. Key Points Hog Price Trends - 4Q24 Expectations: Hog prices were weaker than expected, with the average selling price (ASP) decreasing by approximately 9% compared to expectations. This decline is attributed to delayed hog production from 3Q to 4Q due to increased hog weights [2][10]. - 2025 Price Forecast: The forecast for 2025 hog ASP has been lowered to RMB 15.0/kg from RMB 16.5/kg. This is due to an anticipated increase in hog supply as sow inventory rises, which will exert downward pressure on prices [3][29]. Financial Performance of Companies - Earnings Estimates: Net profit estimates for covered hog breeding companies have been revised. For example, Muyuan Foods' 2025 net profit estimate has been reduced by 25.3% [4][45]. - Company Ratings: - Muyuan Foods downgraded to Hold from Buy with a target price of RMB 39.00 [4][91]. - New Hope downgraded to Reduce from Hold with a target price of RMB 6.60 [4][109]. - Haid Group maintained as Buy with a target price of RMB 61.70 [4][77]. Cost and Profitability - Cost Trends: Breeding costs are expected to decline year-on-year in 2025 due to lower raw material prices and improved production indicators. Companies with effective cost control may still generate profits despite falling hog prices [3][30]. - Capacity Utilization: High leverage among companies is expected to lead to reduced capital expenditures and increased capacity utilization, which may help mitigate some of the impacts of lower prices [31]. Market Sentiment - Investor Concerns: The weaker-than-expected 4Q hog prices have raised concerns among investors regarding the profitability of hog breeding companies in 2025. The share prices of these companies have corrected by 12-18% since October 2024, compared to a 6% decline in the CSI 300 index [12][28]. Long-term Outlook - 2026 Projections: If the hog price and costs align with expectations, the downtrend in hog prices may continue into 2026. However, if prices fall significantly below expectations, there may be a more positive outlook for 2026 [30][56]. Additional Insights - Production Indicators: The report highlights that the percentage of small pigs in production is decreasing, indicating a shift towards larger hogs, which may affect overall production dynamics [20]. - Debt Levels: The report notes that many hog breeding companies are operating with high debt levels, which poses risks if hog prices continue to decline [43]. Conclusion - The outlook for China's hog industry in 2025 is cautious, with expectations of declining prices and profitability for many companies. Investors are advised to monitor cost control measures and market conditions closely as the industry navigates these challenges.