Key investment points
Market review this week
Last week (2022 / 1 / 10-2022 / 1 / 16), the CSI 300 index fell by 1.98%, and the agriculture, forestry, animal husbandry and fishery index fell by 0.87% in the same period, outperforming the CSI 300 index by 1.11 percentage points, ranking 11th among the 28 Shenwan industries.
In terms of sub sectors, the fishery / Shenzhen Agricultural Products Group Co.Ltd(000061) processing / animal husbandry / feed / planting / animal health sector rose or fell by 23.00%, - 0.80%, - 0.83%, - 2.15%, - 2.20%, - 3.19% respectively last week.
Core ideas of this week
[pig breeding] we maintain the view that the recent decline in pig prices will accelerate the deregulation of industry capacity, and the bottom of the cycle may come in advance. Recently, we observed a significant month on month decline in the slaughter volume of pigs, reflecting the depressed market stock mood under the background of repeated covid-19 epidemic, the lack of consumer support for pig prices, and a slight rebound in some provinces, mainly due to the poor acquisition and transportation of pigs caused by epidemic prevention and control. We believe that the weak end consumption situation is difficult to be significantly improved in the short term. The sufficient number of newborn piglets in the second half of last year means that the pig supply will increase trend in the first quarter of this year. Before the Spring Festival, the pig price may continue to fluctuate and fall, and there is a high probability of accelerating the decline after the festival, and the capacity is expected to accelerate. At the same time, the prevention and control of covid-19 epidemic continued to upgrade, prolonged the downturn stage of piglet prices, continued losses in the breeding industry, continued to reduce the breeding cost of purchased piglets, and lowered the expectation of pig prices in the second quarter of 2022.
[white feather broiler] before the Spring Festival, most slaughtering enterprises traded at negotiated prices. The demand for chicken is limited, and the slaughtering enterprises are close to the holiday. It is expected that the price of wool chicken will be adjusted in a narrow range next week, with little increase. Before the Spring Festival, breeding enterprises are cautious in making up columns. Contract stocking is reduced in some areas, and losses may increase. It is expected that the price of chicken seedlings will be adjusted at a low level next week.
[animal protection] new progress in research and development of non plague vaccine or heat of catalytic sector. At present, enterprises have submitted an application for emergency evaluation of African classical swine fever genetic engineering subunit vaccine to the Ministry of agriculture and rural areas. There are four evaluation methods for veterinary drugs: general evaluation, priority evaluation, emergency evaluation and filing review. For veterinary drugs required for emergency disposal of sudden major animal diseases, the Ministry of agriculture can start the emergency evaluation method. The evaluation center shall carry out emergency evaluation according to the requirements of the Veterinary Bureau of the Ministry of agriculture, focusing on the safety, effectiveness and quality controllability of veterinary drugs, and non key data may not be provided temporarily. If it is suggested that it can be used for emergency, the Veterinary Bureau of the Ministry of Agriculture shall put forward audit opinions according to the evaluation opinions of the evaluation center, and issue technical standard documents after being approved by the leaders of the Department in charge. Relevant veterinary drug manufacturers shall apply for temporary veterinary drug product approval number in accordance with the measures for the administration of veterinary drug product approval number. We believe that subunit vaccine has absolute advantages in safety. Generally, there will be no problem similar to the strengthening of gene deletion vaccine strain. Once it passes the emergency evaluation, it is highly likely to directly enter the application stage of veterinary drug products. If the plague vaccine is not successfully commercialized, it will drive the expansion of the whole vaccine sector. We expect that under the background that 650 million pigs are fully immunized with non plague vaccine, it will give birth to more than 10 billion market space, add more than 5 billion net profit, and be divided up by several major vaccine enterprises, and the industry competition pattern may usher in major adjustments.
[seed industry] corn prices may remain high and volatile in 2022. On the supply side, after the central rural work conference in 2021, Heilongjiang will increase the soybean area by 10 million mu in 2022, and the corn planting area may decrease in 2022. Superimposed on the substitution effect of 27.02 million tons of corn imports from January to November 2021 (a year-on-year increase of 199%) and more than 56 million tons of grain imports in the same period, it is expected that China's corn supply may remain stable this year. On the demand side, the downstream breeding capacity remains high to support the feed demand. The corn price may fluctuate at a high level in 2022, which is unlikely to fall sharply. The high grain price may drive the prosperity of corn seeds upward. We believe that the short-term valuation correction in the seed industry sector will not change the long-term trend of the industry. In 2021, the intensive introduction of seed industry policies, the release of national corn and rice variety approval standard (revised in 2021) and the adoption of the draft amendment to the seed law are aimed at encouraging seed industry innovation and combating licensing infringement. We believe that the intellectual property protection mechanism of seed industry will continue to be strengthened in the future, It is conducive to seed enterprises with technological innovation ability to seize a higher market share.
Investment advice
[pig breeding] cost reduction and efficiency increase in 2022 is still the main theme of the industry. It is recommended to pay attention to the enterprises that "can continuously increase the number of sows and production efficiency" and "improve the cost fastest" in the next 1-2 quarters.
[white feather broiler] the industrial chain has experienced a loss for one year. The deep loss in the downstream inhibits the enthusiasm to make up the fence. The decline in the price of chicken seedlings affects the profits of the incubator, or forces the chicken breeding farm to take the initiative to reduce the production capacity. We may see the month on month contraction of the supply of chicken seedlings in the third quarter of 2022, and follow-up pay attention to the changes in the stock of grandparents and parents. It is recommended that enterprises focusing on the layout of the whole industrial chain business and the target of the upstream main chicken seedling sales business.
[yellow feather broiler] even if the industry accelerates the clearing of production capacity at the low point of the cycle, the head enterprises still expand against the trend. It is expected that the market share of the head enterprises will further increase after the gradual withdrawal of free range farmers in the future. It is recommended to pay attention to the leading leaders in continuous capacity expansion and cost control, as well as enterprises that comply with the development trend of frozen fresh sales.
[dynamic insurance] the sector has fallen to a reasonable range due to the drag of pig price. It is expected that the reversal of pig price in the second half of 2022 will lead to the upward prosperity of the industry, and the sector is expected to usher in valuation repair. It is suggested to lay out at a low level. It is recommended to focus on Pulike Biological Engineering Inc(603566) with obvious advantages in subunit vaccine R & D and industry leaders with rich product reserves.
[seed industry] with the intensive introduction of favorable policies and the improvement of supply and demand fundamentals, the industry has ushered in an upward cycle. It is expected that high-quality seed enterprises will usher in a performance release period in the next few years, the curtain of genetically modified organism breeding will open, the corn seed industry will usher in strong capacity expansion expectations, and the leading seed enterprises may usher in a high-speed growth stage. It is recommended to pay attention to seed enterprises with rich transgenic technology and variety reserves.
Risk tips
Covid-19 epidemic spread risk, international situation change risk, policy implementation less than expected risk, etc.
