[market this week]
Shenwan agriculture, forestry, animal husbandry and fishery industry (- 2.85%), ranking of Shenwan industry (8 / 28); Shanghai Stock Index (- 3.87%), Shanghai and Shenzhen 300 (- 4.19%), small and medium-sized 100 (- 3.64%);
[core view]
Aquaculture industry:
Pigs: looking at the data of fertile sows, on April 18, the National Bureau of Statistics said that at the end of the first quarter, the number of fertile sows was 41.85 million, a year-on-year decrease of 1.33 million, a decrease of 3.1%; The number decreased by 1.44 million, down 3.3%. Equivalent to 102.1% of the normal stock of 41 million, it is in the green and reasonable area of capacity regulation. Looking at the feed data, on April 19, the feed industry association announced the national feed production situation in March. The output of pig feed was 10.11 million tons, an increase of 9.3% month on month and a year-on-year decrease of 2.2%. Looking at the price, according to China pig network, as of April 22, the price of live pigs (foreign three yuan) was 14.78 yuan / kg, up 16.5% from last week. We believe that the worst time point of pigs in recent years may have passed, and the market will rise in the short term, but I’m afraid it will be difficult to maintain its strength. From the data of feed and sows, the stock on hand is still loose on the whole. The recent price rebound is mostly related to the limited transportation and reluctant sale. As of April 22, the profit of pig self breeding was -376.61 yuan / head, with a month on month correction of 29.2%. The capacity reduction is still on the way: on the one hand, the ability to breed sows at the end of March is equivalent to 102.1% of the normal population of 41 million. Combined with the current breeding profits, although the speed may slow down, there is still momentum for the reduction. On the other hand, although the industry’s ability to breed sows has been reduced by – 8.3% compared with the high point in June last year, from the perspective of historical cycle, the cycle will not start until sows are reduced by 15% – 20%.
We believe that the worst time point of pig breeding in recent years may be in the past. Supply side: this round of fertile sows began to be depopulated from the highest point of 45.64 million in June 2021. According to the breeding cycle, at present, April should be the peak of fattening. There is still time before the peak consumption season in the later stage, and the short-term sentiment of the industry is not heavy. Therefore, we believe that the current is generally the peak of pig supply in recent years. Demand side: in previous years, consumption weakens after the Spring Festival, and April is also one of the lowest consumption periods of the year. Superimposed on the repeated outbreaks in many places from March to April, the demand for catering has been significantly suppressed, and the demand is generally the lowest in recent years. From the pig market, but driven by the collection and storage and replenishment, the price has obvious support.
In terms of trading, we suggest to continue to pay attention to the opportunities of the pig sector. At the same time, pay attention to the investment opportunities brought by the reversal of pig cycle to the animal protection sector. The reasons are as follows: 1) the reversal of pig cycle will improve the breeding profit, increase the demand for animal protection, and the animal protection industry will also reverse. From the historical trend of the sector, the market of pig and animal protection sector is highly consistent, and the start of animal protection sector lags slightly, which is also in line with the logic of industrial profit transmission. 2) Vertically, the overall valuation of the animal protection industry has been at a historically low level with high cost performance. Wande animal health concept index pe-ttm has fallen to the lowest level in 10 years. 3) Horizontally, there is also a cost performance ratio with the valuation of overseas dynamic insurance enterprises. The five-year PE average of zoetis, the global animal protection giant, is about 42 times. Although there is still a gap in the core R & D and service capabilities of Chinese mobile insurance enterprises, Chinese enterprises also have explosive potential in mobile insurance segmentation, domestic substitution and overseas business expansion, with prominent valuation and cost performance.
We believe that the game of pig sector has entered the stage of 3.0. The classic cobweb model reflects the market logic of price reduction – production reduction – short supply – price increase – production increase – price reduction. From the historical and recent performance of the capital market, the game of the capital market against the pig sector has gradually evolved from the initial “price increase” (stage 1.0) to “production reduction” (stage 2.0) to “price reduction” (stage 3.0). The capital market has digested the expectation of price reduction at the beginning of the year, and formed a certain expectation of production reduction and upward expectation in the future cycle in advance. “The lower the price, the lower the production and the higher the share price”. The logical chain of “cobweb model” of capital market game continues to move forward.
In terms of trading, considering the recent pullback of some companies in the pig sector, we believe that this is related to the warmer price and the loosening of some chips of “price reduction” in the early stage. On the whole, we believe that the investment opportunities in this round of pig cycle have not been completed. After short-term adjustment, bargain hunting intervention is a more appropriate strategy. However, this round of pig cycle will return to the Epic Cycle of 19 years, which does not have the external environment of environmental protection and non plague impact on production capacity. It is suggested to maintain rational expectations.
In terms of broilers, we believe that the supply and demand fundamentals of yellow feather chicken will promote the market cycle upward. 1) On the supply side, the long-term breeding loss in the early stage makes the industry’s production capacity obvious. According to the China Animal Husbandry Association, the stock of parents of yellow feather broilers has been in a low position for nearly four years. We believe that the overall production of yellow feather broilers in 22 years will be at a low level in recent years. 2) On the demand side, as the market of live pigs and other animal proteins bottoms out, the substitution squeeze of yellow feather broiler demand will gradually ease and the margin will be better. In addition, the consumption of live poultry suppressed by the epidemic has been fully digested in the past two years, with marginal improvement. The Yellow Feather Broiler sector is expected to usher in a business cycle. Pay attention to Jiangsu Lihua Animal Husbandry Co.Ltd(300761) , Hunan Xiangjia Animal Husbandry Company Limited(002982) , Wens Foodstuff Group Co.Ltd(300498) and other related subjects.
In terms of industrial chain integration, we believe that head breeding enterprises extend to downstream slaughtering and processing, food manufacturing and even terminal sales by virtue of their advantages of upstream integration and large-scale, with continuous enrichment of business and continuous improvement of value. Head breeding enterprises are expected to rely on their core advantages to continuously improve their competitiveness and open the performance growth curve.
Highlights: China’s leading large-scale aquaculture [ Muyuan Foods Co.Ltd(002714) ] with obvious cost advantages, new forces of large-scale aquaculture [ Fujian Aonong Biological Technology Group Incorporation Limited(603363) ] with capacity advantages and expansion potential, [ New Hope Liuhe Co.Ltd(000876) ] and [ Fujian Sunner Development Co.Ltd(002299) ] with rapid progress in industrial chain integration.
Planting industry: the seed industry has ushered in a historic opportunity of “three-phase superposition”. During the policy period, on February 11, the State Council issued the “14th five year plan” to promote agricultural and rural modernization. In the chapter “promoting innovation driven development”, it once again emphasized the revitalization of the seed industry – strengthening the protection of germplasm resources, carrying out breeding innovation, strengthening the construction of seed industry base and strengthening the supervision of seed industry market. During the industrial period, bulk grain prices remained high, farmers’ willingness to grow grain increased, and corn and rice seed stocks, supply and demand were optimized, promoting the prosperity of the seed industry. The technical period is 22 years, and biological breeding is expected to be popularized. It is expected that the biological breeding promotion plan in the near future is expected to be clear: 1) the low version of the plan only involves the promotion in Inner Mongolia and Yunnan; 2) On the basis of the low version, the medium version also popularizes the main corn producing areas in Northeast China; 3) The higher version will be fully released. We believe that considering the national determination to promote the revitalization of the seed industry and the current actual situation of planting, there is a high probability that the Chinese version will be finally launched.
In the medium and long term, we are firmly optimistic about the prospects of the national seed industry and the improvement of the fundamentals of relevant seed enterprises. Under the banner of seed industry revitalization, the iteration and reconstruction of the industry are constantly implemented from top to bottom, which is highly deterministic. “Iteration” refers to the iteration of biological breeding technology. In January, relevant policies on transgene and gene editing were implemented to support the efficient approval of relevant varieties and show the determination and strength of the policy. “Reshaping” is the reshaping of the industry pattern. At the national conference to promote the work of supporting excellence of seed enterprises, it was once again emphasized that “we should improve and strengthen a number of seed industry leading enterprises with integrated innovation ability and adapt to market demand, and create the backbone force for the revitalization of seed industry”. The leading seed enterprises with scientific research advantages will become more and more prominent.
The overall implementation of the “seed industry and law enforcement system” means that the overall implementation of the “seed industry and law enforcement system” is better and better.
In terms of trading, we believe that although there is a time cycle for the achievement of the industry performance, the revitalization of the seed industry is sustained and certain. The cashing cycle will inevitably lead to the settlement of “impetuous” funds and fluctuations, but it also brings opportunities for bargain hunting allocation to “long-term” funds. Retreat from the “floating foam” with high short-term expectations, and with the style suppression coming to an end, there will be better trading opportunities.
Key recommendation: seed industry leader [ Yuan Longping High-Tech Agriculture Co.Ltd(000998) ] with genetically modified trait reserve, and [ Beijing Dabeinong Technology Group Co.Ltd(002385) ] with leading genetically modified technology and multiple businesses.
Pet industry: pet industry is a high-quality track catering to social development and consumption trend. According to the white paper on China’s pet industry, China’s pet industry has a market scale of 100 billion, with a compound annual growth rate of nearly 20%. At present, overseas giants occupy a high share of China’s pet food and medical market segments. We believe that the branding of domestic OEM enterprises will continue to accelerate, and have comparative advantages in understanding and deepening Chinese traditional and modern channels. The pet industry will usher in opportunities for domestic substitution, and we will continue to follow up and pay attention.
Key recommendation: China’s pet food industry leader [ Yantai China Pet Foods Co.Ltd(002891) ].
Grain and oil industry: affected by the Shenzhen Agricultural Products Group Co.Ltd(000061) cycle, the disturbance of global supply chain under the epidemic and other factors, the prices of soybean and other oilseeds have risen, the cost side pressure of grain and oil enterprises has become prominent, and the squeezed profits have declined significantly. We believe that the performance of grain and oil enterprises is expected to boost with the marginal improvement of the pressure on the cost side – the future Shenzhen Agricultural Products Group Co.Ltd(000061) cycle and the recovery of consumption after the easing of the epidemic on the demand side. Focus on integrated supply chain management and operation of leading enterprises.
Key recommendation: grain and oil leader [ Yihai Kerry Arawana Holdings Co.Ltd(300999) ], which is expected to develop in the overall kitchen business.
Risk tip: the economic recovery is less than expected, the epidemic situation, etc
