Chapter 1 Industry Overview
Pigs refer to unprocessed, raw, live pigs in porcine animals, usually pigs used for meat production. Pigs are one of the main sources of meat worldwide. Their meat is rich in quality and high in nutritional value, and they can also be used to make various processed meat products, such as ham and sausages.
The pig farming industry refers to a series of activities related to pigs, including breeding, breeding, feeding, health care, slaughtering, meat processing and other links. Key players in this industry include hog farmers (including family farms, commercial farms, and conglomerates), feed suppliers, veterinary service providers, and meat processors and distributors. The pig farming industry plays a vital role in the global agricultural and food supply chain, which directly affects meat supply, price levels, and food safety issues.
Fig. Structural diagram of pig industry chain
Source: Qianji Investment Bank iFinD
As of January 12, 2023, the number of Shanghai and Shenzhen constituent stocks in the iFinD hog sector is 10, and there have been new additions in recent years. The total market value of enterprises has fluctuated greatly in recent years, and there is a recent downward trend. As of January 12, 2023, the total market value of the company is 605.471 billion yuan.
The number of constituent stocks and the total market value of the graph
Source: Asset Information Network Qianji Investment Bank Wind
The pig farming industry is an important part of global agriculture, and the industry has a wide spread across the world. According to the Food and Agriculture Organization of the United Nations, around 1 billion pigs are slaughtered globally every year. These pigs are mainly from Asia, Europe and America.
China is the world's largest hog producer, accounting for about half of global hog production. China's hog farming industry is large and widespread, ranging from small family farms to large conglomerates. Other countries with a significant presence in hog production include the United States, Brazil, Germany and Spain.
The global pig production industry faces a variety of challenges, including the threat of disease (such as African swine fever), environmental concerns, animal welfare concerns, and fluctuations in demand. However, despite these challenges, the hog farming industry has maintained strong growth globally as hogs are an important source of meat for consumers across the globe.
Chapter 2 Business Model and Technology Development
2.1 Pig industry chain
The industrial chain of the pig industry is a complex system that includes multiple links. The main links include pig breeding, feed production, pig breeding, slaughtering and processing, and meat sales.
Pig breeding is the initial link of the industrial chain, which involves the selection and breeding of high-quality breeding pigs to provide high-quality breeding pigs for pig breeding. The high technological content of this link has an important impact on the efficiency and quality of the entire industrial chain.
Feed production is the process of providing nutritious feed for pigs. This usually involves sourcing and processing food crops (eg corn, soybeans).
Pig breeding is the core link of the industrial chain, including pig breeding, management and health care. The efficiency and health management of this link directly affects the growth efficiency and meat quality of live pigs.
The slaughtering and processing link involves the slaughtering, cutting and preliminary processing of live pigs to produce various meat products.
Meat sales are the last link in the industry chain, involving the wholesale, retail and distribution of meat products. The sales strategy and market analysis in this link have an important impact on the profitability of the entire industry chain.
In general, the industrial chain of the pig industry is a complex system involving multiple links, multiple participants, and multiple issues. In this system, every link needs continuous improvement and innovation to improve efficiency, quality and sustainability.
2.2 Business model
The business model of the hog industry is mainly based on vertical integration. Vertical integration helps to achieve complementary benefits and promote sustainable development of the hog industry. Especially after the outbreak of African Swine Fever (ASF) in 2018, many activities in China's hog industry chain were disrupted, the production capacity of breeding pigs declined rapidly, and pork supply was tight. At this time, the vertical integration of the hog industry chain has become the main driving force to ensure food supply.
In China, the vertical integration methods of hog companies mainly include forward integration and backward integration. The research data show that the forward integration degree of feed processing link and slaughtering circulation link is higher than the backward integration. ASF has a different impact on the degree of vertical integration of each link, and ASF promotes forward integration. The increase in forward integration mainly depends on the previous asset characteristics, legal and institutional environment, market demand and transaction frequency.
In the process of dealing with the impact of ASF, the hog industry chain has adopted a strategy of forward integration. The combination of feed link and breeding link can reduce feed cost and ensure pork supply. Hog companies tend to reduce transaction costs by strengthening control over downstream supply.
From the perspective of the production process, in the field of upstream crop feed production, due to the large fluctuations in domestic production of agricultural products such as corn and sweet potatoes and market supply and demand, the pig breeding industry is strongly affected by upstream fluctuations. Costs change and prices go up.
Changes in the cost of pig breeding in my country
Source: Asset Information Network Qianji Investment Bank Guolian Securities Research Institute
The price of live pigs and pork in the Chinese market
Source: Qianji Investment Bank iFinD
In the downstream slaughtering process, the price of pork is mainly affected by the dual impact of market supply and demand, resulting in price fluctuations. At present, my country has entered a new round of pig cycle. Since March-April 2022 has entered the off-season of pork demand, the price of pigs has entered a trough, and slaughter companies have begun to accelerate replenishment, and the slaughtering volume has increased from 15.68 million in February to 27.38 in April. million heads, an increase of 74.62% month-on-month, thus pushing up the price of pork on the market. At the same time, since the state raised the pork import tax rate from 8% to 12% from January 1, 2022, the import volume of pork has been further reduced, and the contradiction between supply and demand in the domestic market has further intensified, and the price of pork has continued to rise.
Figure my country's monthly pork imports
Source: Qianji Investment Bank iFinD
The business models of the hog industry are diverse in China. The main models include traditional family farms, large-scale farms, and modern vertically integrated farms. Among these models, vertically integrated farms are becoming increasingly important. Vertical integration is involved in all links in the chain of feed production, breeding, fattening, slaughtering and distribution, and can promote the sustainable development of the industry by reducing transaction costs, ensuring product quality and improving efficiency. This model is widely used in China It has been widely used in the pig industry.
In recent years, China has started building a new type of multi-storey pig farm, an innovative form of the vertically integrated model. These pig farms operate like factories, utilizing high-tech solutions such as robots and intensive monitoring for more efficient production. For example, there are new breeds of pig farms that send feed to the top tier via conveyor belts, where feed is then automatically distributed to pigs on each tier via high-tech feed troughs based on their life stage, weight and health. The advantage of this model is that it can reduce the spread of disease and improve production efficiency.
In general, China's hog industry has adopted a variety of business models to respond to changes in market demand and industry challenges. The selection and application of these models depends on many factors, including market demand, disease risk, environmental impact, and policy direction. These factors are constantly changing, so the business model of the industry also needs to be constantly innovated and adjusted to adapt to these changes and challenges.
2.3 Technology Development
As an important industry related to national living standards, the hog industry’s fundamental task is to cultivate excellent hog products and hog breeds with higher slaughter rate, shorter breeding period, and better breeds in a more efficient and less costly manner, so as to meet the needs of social development, national Safety, the needs of people's lives.
(1) Breeding and genetic improvement: my country currently has a large amount of pork production and a large demand for pork. The unit production cost in the production process is significantly higher than that of developed countries, which greatly affects the production efficiency and output level of pigs in my country. Through the establishment of a complete pig breeding system, the hybridization of pig breeds is carried out in the form of genetic improvement, and the cultivation of new breeds and strains is promoted. By continuously strengthening the investment in genetic improvement of live pigs, we will make up for the shortcomings in breeding pig breeding with developed countries, and continue to promote the genetic improvement program.
(2) Pig farming: In response to feed price fluctuations and risks in the pig farming process, research and development of new feeds should be promoted, and intelligent farming model innovations should be carried out relying on technological development. Vigorously develop and promote the application of new low-protein diets to alleviate the cost fluctuations in the pig breeding industry caused by rising raw material prices, and coordinate economic, social and ecological benefits. Relying on scientific and technological innovation, apply artificial intelligence, big data and other technologies to the whole process of pig breeding, promote the development of a new model of intelligent pig farming, and promote the structural reform and industrial transformation and upgrading of the pig farming industry.
The number of patents of each patent applicant in the domestic pig industry is counted, and the ranking companies are: Muyuan, New Hope, Wen's, Zhengbang Technology, Shennong Group, Tianbang Food, Dongrui, and New Ng Fung.
The table shows the ranking of domestic patents in the pig industry (as of January 12, 2023)
Source: Qianji Investment Bank iFinD
The technological development of the pig industry is diversified and global, and many countries are actively exploring and introducing new technologies to improve the efficiency and sustainability of the pig industry.
2.4 Policy Supervision
Industry authorities and management system
The Ministry of Agriculture and Rural Affairs of the People's Republic of China conducts macro-control on the pig industry. National hog industry associations and local hog industry associations are self-regulatory industry organizations for the hog industry.
related policy
The hog industry is an important industry related to the quality of life of the people. To improve the quality of life of residents and stabilize prices, the hog industry must continue to create high-quality, high-performance products to meet the needs of social development. Since the 19th National Congress of the Communist Party of China, in order to promote the high-quality development of the hog industry and accelerate the transformation and upgrading of the industry, a series of supportive policies have been introduced from the state to the local level, providing a good guarantee for the accelerated transformation and upgrading of the hog industry.
Table related central and local policies
Source: Qianji Investment Bank iFinD
Chapter 3 Industry Valuation, Pricing Mechanism and Global Leading Enterprises
3.1 Comprehensive financial analysis and valuation methods of the industry
To conduct a comprehensive financial analysis of the hog industry, it is necessary to focus on the following key indicators:
- Income growth: First of all, we need to see whether the company's operating income continues to grow. If the revenue growth is stable, it means that the company has strong sales ability and the market acceptance of products or services is high.
- Profit margin: Check the company's gross profit margin and net profit margin to understand the profitability of the enterprise. This can help us understand whether the company can effectively control costs and expenses and achieve profit growth.
- Current Ratio: This indicator demonstrates the short-term solvency of a company, especially in the hog industry, where strong liquidity is critical given its cyclicality and uncertainty.
- Debt Ratio: Look at the debt ratio of a business to understand its long-term solvency and financial stability. If the debt ratio is too high, it may increase the financial risk of the enterprise.
- Return on Assets: Look at a business' Return on Assets (ROA) and Return on Equity (ROE) to understand a business' profitability and efficiency.
- Cash Flow: This indicator shows whether the company's operating cash flow is healthy, as well as the company's cash flow from investing and financing activities.
The above analysis should combine industry trends and compare the performance of other companies in the same industry to comprehensively evaluate the financial performance and competitiveness of the company in the industry.
Figure Comprehensive Financial Analysis
Source: Qianji Investment Bank iFinD
Figure Industry Valuation and Historical Comparison
Source: Qianji Investment Bank iFinD
Figure Index PE/PB
Source: Qianji Investment Bank iFinD
Chart Index Market Performance
Source: Qianji Investment Bank iFinD
The valuation method of the hog industry can choose price-earnings ratio valuation method, PEG valuation method, price-to-book ratio valuation method, price-to-cash ratio, P/S market-to-sales ratio valuation method, EV enterprise value method, EV/Sales market-to-sales ratio valuation method value method, RNAV revaluation net asset valuation method, EV/EBITDA valuation method, DDM valuation method, DCF discounted cash flow valuation method, dividend discount model, equity free cash flow discount model, unlevered free cash Discounted flow model, net asset value method, economic value added discount model, adjusted present value method, NAV net asset value valuation method, book value method, liquidation value method, cost replacement method, real option, LTV/CAC ( Customer lifetime value/customer acquisition cost), P/GMV, P/C (customer), Metcalfe valuation model, PEV, etc.
Figure comparison of valuations of major listed companies
Source: Qianji Investment Bank iFinD
The main business structure of Tumuyuan Co., Ltd.
Source: Qianji Investment Bank iFinD
The main business structure of Tu Wen's shares
Source: Qianji Investment Bank iFinD
3.2 Industry Development and Driving Factors
technological innovation
Technological innovations in breeding pig breeding represented by hybrid breeding and genetic gene banks, as well as technological innovations in production processes represented by intelligent production equipment and new feed, can synergistically promote the improvement of breeding pig quality and the optimization of production processes Improve efficiency. Through technological innovation, the improvement of the quality of breeding pigs and the intelligent and ecological transformation of the production process will provide important support for ensuring the national meat consumption demand and maintaining price stability.
Policy assistance
With the gradual recovery of the national economy, the national income will further increase, and the per capita pork consumption will gradually return to the pre-epidemic level. In order to ensure the stability of pork prices in the market and the stability of pork production, the Ministry of Agriculture and Rural Affairs and other departments are formulating new policies to ensure stable production and support the development of the industry. Local governments mainly provide policy encouragement in terms of financial subsidies, tax concessions, financial support, industry guidance, and administrative licensing support.
event driven
Figure News Index
Source: Qianji Investment Bank iFinD
3.3 Industry risk analysis and risk management
Table common industry risk factors
Source: Asset Information Network Qianji Investment Bank
(1) Periodic fluctuations: Due to the fluctuations in the upstream grain and feed industry and the contradiction between supply and demand in the downstream, the hog industry has cyclical fluctuations in hog production, and its demand and sales price may be affected by cyclical fluctuations and reduce, which intensifies the sales burden of hog enterprises and financial stress.
(2) Risk of fluctuations in feed prices: pigs are fed with agricultural products such as corn, etc., fluctuations in prices of upstream agricultural products may lead to high cost of raising pigs, while downstream pork prices are controlled by the state and it is difficult to increase prices easily, so they will face greater risks cost pressure.
(3) Plague impact: Swine fever infection or other infectious diseases may occur in the process of raising pigs. In order to protect food safety and public health, the infected pigs will be destroyed. This risk may cause large-scale losses to pig breeding enterprises. put the business in trouble.
3.4 Competition Analysis
Figure 2022 Top 10 Global Pig Enterprises
Source: Qianji Investment Bank iFinD
Figure SWOT analysis
Source: Asset Information Network Qianji Investment Bank Wind
In 2022, a new round of pig cycle will be entered as a whole
Starting from March 2022, domestic pork consumption will enter a low period, coupled with the country's increase in pork import tariffs, the overall market pork price will rise. In 2022Q4, the scale of breeding sows has gradually recovered, coupled with the introduction of regulatory policies by the state, the overall pork price has declined.
Figure 2022 market pork prices
Source: Qianji Investment Bank iFinD
Figure industry configuration ratio
Source: Qianji Investment Bank iFinD
3.5 Important participating enterprises
Important players in Chinese companies include Muyuan Stock [002714.SZ], Wens Stock [300498.SZ], New Hope [000876.SZ], Shennong Group [605296.SH], Zhengbang Technology [002157.SZ], Superstar Agriculture and Animal Husbandry [603477.SH], Tianbang Foods [002124.SZ], Luo Niushan [000735.SZ], New Ng Fung [600975.SH], Dongrui Stock [001201.SZ].
Major global non-Chinese listed companies include Seaboard[SEB.US], BRF[BRFS.US], Sunjin Shangjin[136490.KS], etc.
Chapter 4 Future Outlook
In the next ten years, we expect the hog industry to go through three major stages of development: technological innovation, increased industry concentration, and market maturity.
First of all, scientific and technological progress will change the production mode of the aquaculture industry. Precision farming technologies, such as smart feeding, genetic selection, and animal health management systems, will make pig farming more efficient, reduce disease risk, and improve yield and meat quality. Large-scale investment and application of new technologies will promote the continuous development of the industry.
Second, industry concentration will further increase. Large-scale and industrial farming will gradually replace traditional small family farms, bringing higher production efficiency and stronger risk resistance. At the same time, the industry's environmental impact will also be effectively managed and mitigated.
Finally, with the maturity of the market and the upgrading of consumer demand, the hog industry will gradually transform towards quality and sustainability. Consumers will pay more attention to the source, production method and quality of pork. Therefore, businesses must focus on consumer needs and actively promote quality improvement and sustainable farming methods.
Based on the above factors, the future of the hog industry is full of opportunities, but there are also challenges. The key to success will be how to combine new technologies, industry concentration, and changes in market demand to create a competitive business model.
Cover Photo by Annie Spratt on Unsplash