The Zhitong Finance app learned that Anxin International released a research report saying that pig prices are currently in the bottoming out stage. Considering the demand for pork during the Spring Festival at the end of the year, pig prices may rise in the first quarter of next year. Meanwhile, the recent accelerated removal of production capacity will support stock prices. Currently, the valuation of the aquaculture sector is sluggish, and production capacity has reached an inflection point. It is recommended to lay out on dips. Recommended target: COFCO Jiajiakang (01610).

The main views of Anxin International are as follows:

Pig prices are bottoming out. Since this year, pig prices have continued to fall in the first half of the year. There was another small rebound until August, and then fell again in the last month. The main reason for the rebound is the short-term imbalance between supply and demand due to increased demand in summer, compounded by overselling by farmers in the early stages. However, in the past three years, spurred by the superpig cycle, the industry has expanded production on a large scale. As a result, the supply of pigs is still quite adequate, and support for pig prices is limited. Currently, pig prices are still bottoming out.

The removal of production capacity is accelerating. Judging from market sentiment, the market is still paying a lot of attention to data on the storage of sows that can be raised. Judging from the figures disclosed by the Ministry of Agriculture, the stock of breeding sows continued to decline in October. According to third party data, production capacity is being reduced at an accelerated pace. Combining data from Mysteel, Hexun, and Surge, the number of sows that can be raised in November fell 1.5-2.8% month-on-month, a significant increase from the decline in October. The continued slump in pig prices has led to an acceleration in the removal of production capacity.

The cost of feed has declined, and the price ratio of pig food is at an all-time low. Judging from the most recent quarter, there has been a clear correction in both soybean meal and corn prices. Currently, the price of soybean meal is 4,035 yuan/ton, and the price of corn is 2,572 yuan/ton, down 18% and 10% respectively from the high at the end of August. However, over a longer period of time, the price of feed costs (corn, soybean meal, etc.) has risen sharply since '20, and is still fluctuating at a high level in '23. The price of soybean meal has fluctuated drastically in the last two years.

The performance of the aquaculture sector is poor, and valuations are at historically low levels. Affected by falling pig prices, pig breeding stocks have performed poorly since the beginning of the year. The decline is generally over 15%, and there has been a slight increase recently. Currently, the valuation of the pig breeding sector is at an all-time low. The PB of leading companies Makihara and Wen's is 3.4-3.9x, and the PB of COFCO Jiajiakang is only 0.9x. The sector has already entered an attractive valuation range.

Risk warning: Capacity removal is slower than expected, pig prices have rebounded less than expected, and large-scale epidemics have occurred.