Guoxin Securities: The cycle is bottoming out and is expected to start an upward trend, and the development of pig breeding will usher in a new stage

The Zhitong Finance App learned that Guoxin Securities released a research report saying that it is expected that production capacity will be further accelerated in the next few months, and pig prices are expected to reverse the cycle that is expected to begin by 2027. Currently, listed pig companies account for nearly 40% of the overall production capacity of the industry, and leading companies account for nearly 15%. There is still room for leading companies to expand in the future. The pig sector as a whole and the share of leading fund holdings reached the bottom of the cycle. Swine investment sentiment bottomed out, and the risk-return ratio of allocation was prominent. The cash flow of leading pig companies is expected to be the first to improve and transform into a high-quality dividend target.

Guoxin Securities's main views are as follows:

Pig market outlook: pig prices are expected to rise steadily in 2027, which is expected to start a new cycle

Recently, piglets and sows have reached a record low. Historically, piglet prices are close to pig prices, indicating that cyclical sows have bottomed out. This is a forward-looking indicator of a reversal. It is expected that sows that can reproduce will further accelerate their degeneration in the future. In terms of production capacity, at the end of 2026Q2, the official capacity storage column has dropped to 37.8 million heads, a quarter-on-month decrease of 3.20%. Compared with the 2026Q1 month-on-month removal acceleration of 1.41%, compared to the high in November 2024, it has already been reduced by 7.4%, and 6.5% compared to the starting point of capacity regulation at the end of the first half of 2025. Furthermore, in July 2026, the energy yield statistics of Yongyi, Steel Union, and Zhuochuang were -0.01%, -0.62%, and -1.48% month-on-month, respectively, and -3.54%, -5.64%, and -6.64% compared with the same period, continuing the trend of elimination. Considering that current pig and piglet prices are still at the bottom of the cycle, high-cost production capacity will continue to face cash flow pressure. The bank expects production capacity to be further accelerated in the next few months, and the cycle reversal of pig prices is expected to begin by 2027.

The competitive pattern of pig companies: the competitive advantage of industry leaders is obvious, and they are more optimistic about the long-term value of leading companies

Leading companies represented by Muyuan Co., Ltd. still maintain a clear advantage in breeding costs. There are still high breeding costs in the industry. According to the bank's estimates of the pig industry's 2026 interim report, the average net profit gap between leading and backward pig companies is still close to 400 yuan, and the corresponding cost gap is close to 3-3.5 yuan/kg. Looking at the extended cycle, the ROE of Muyuan Co., Ltd. and Wen's shares are also clearly superior to their peers. Since 2010, the average annual ROE has been close to 17% and 11%, respectively, exceeding the average performance of comparable listed companies by 13% and 7%. Due to many uncertain factors in the agricultural production cycle, first-line farming management is more difficult to control than standard industrial products, so targets that can maintain stable excess performance over a long period of time are also relatively scarce among leading breeding companies. Furthermore, at present, listed pig companies account for nearly 40% of the overall production capacity of the industry, and leading companies account for nearly 15%. There is still room for leading companies to expand in the future.

Fund holdings: The allocation of active equity funds in the pig sector is already at a significant historical low

By the end of 2026Q2, the share of hog sector fund holdings had fallen to a very low level in the past ten years. At the end of 2026Q2, holdings were only 0.20%. The previous low was 0.23% at the end of 2026Q2, within the 1% quartile since 2013. Makiyuan Co., Ltd.'s heavy fund position ratio at the end of 2026Q2 was only 0.09%, a new low level in the past ten years; the heavy fund ratio of Wen's shares was only 0.04%, down about 58% from quarter to quarter. Currently, both the pig sector as a whole and the share of leading fund holdings have reached the bottom of the cycle. Swine investment sentiment has bottomed out, and the risk-benefit ratio of allocation is prominent.

Risk warning: 1. Risk of rising pork prices falling short of expectations; 2. Risk of macroeconomic fluctuations; 3. Risk of large fluctuations in raw material prices; 4. Risk of animal disease; 5. Cash flow and financial risk; 6. Loss of production capacity falling short of expected risk; 7. Compliance and environmental risks, etc.