View of breeding sector: the depopulation of pig production capacity in 2021q4 slows down and waits for the inflection point to come

This week's topic: 1) the rate of capacity removal in the industry is slowing down and the structure is continuously optimized. According to the data of the Ministry of agriculture, in November, the number of fertile sows in China was 42.96 million, equivalent to 104.8% of the normal number, down 1.2% month on month, and it is estimated that there is still an increase of 4-5% year-on-year; Combined with the Yongyi consulting data, we judge that the capacity removal of retail investors in the industry has basically stopped, and the overall decline of the industry is mainly due to increased elimination and structural optimization. 2) 22q2-q3 industry capacity is expected to accelerate the elimination. The number of fertile sows in the industry has declined for five consecutive months since July 21, and the cumulative removal rate of higher points has reached 7%. However, considering the improvement of efficiency (MSY) brought by structural optimization, we believe that the current removal rate is still difficult to support the reversal of pig cycle. According to the questionnaire survey of Yongyi consulting on the pig breeding industry from November to December of 21, if there is a loss for 3-6 months next year, up to 46% of farmers will still increase basic sows, 28% of farmers will maintain stable production capacity, and only 8% of farmers will significantly reduce production capacity. We believe that with the 22h1 pig price falling below the cash cost line again and accelerating the cash flow consumption of farmers, the de industrialization of industry capacity is expected to speed up, and the 2022q2-q3 pig cycle reversal is expected to heat up. 3) The pig plate has entered the bottom building stage. In the short term, the pressure on the supply side of live pigs is still large, and the performance of breeding enterprises will continue to be under pressure in the next 2-3 quarters. At present, breeding enterprises should slow down the expansion speed, strengthen fine management and optimize costs. In the future, with the expected rise of the reversal of the pig cycle, enterprises with cost advantages and performance flexibility will gradually highlight the value of enterprise allocation.

Industry highlights: 1) Kweichow Moutai Co.Ltd(600519) the net profit attributable to the parent company in 2021 is expected to increase by 11.3% year-on-year. 2) By-Health Co.Ltd(300146) the net profit attributable to the parent company in 2021 is expected to increase by 5% - 25% year-on-year. 3) Foshan Haitian Flavouring And Food Company Ltd(603288) announcement on foreign investment. 4) Eastroc Beverage (Group) Co.Ltd(605499) independent director resigns.

Risk tips: 1. Risk of macroeconomic weakness; 2. The risk of long-term epidemic prevention and control in China; 3. Risks of major food safety events; 4. Major agricultural epidemic risk.

 

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