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Zebra Consumption Shen Tuo

Pork prices are recovering, and the Pig King knows it first.

In the first half of this year, Muyuan Foodstuff achieved operating income of 56.866 billion yuan and net profit attributable to shareholders of the parent company of 829 million yuan, instantly reversing last year's loss of more than 4.2 billion yuan.

As pork prices rise, prices of feed such as soybean meal fall, leaving pig farming companies with a larger profit margin.

At the end of June this year, the national sow inventory did not show a significant upward trend, and it is expected that the supply of live pigs will remain in short supply in the fourth quarter. That will be the real time for Muyuan shares to recover.

The Pig King Turns Over

Muyuan Foodstuff Co., Ltd. (002714.SZ), the pig king worth hundreds of billions of yuan, has finally survived.

On August 3, the company disclosed its 2024 semi-annual report, achieving operating income of 56.866 billion yuan during the period, a year-on-year increase of 9.63%; net profit attributable to shareholders of the parent was 829 million yuan, a huge increase of 129.84% over the previous year, reversing the situation of a huge loss of nearly 4.3 billion yuan in the previous year.

In fact, the company was still in the red in the first quarter of this year. In the second quarter, the price of pigs began to pick up, which became the key to the amazing turnaround in performance. In Q2, the company's net profit attributable to the parent company increased by 302.91% to 3.208 billion yuan.

Since February, the company's average pig sales price has continued to rise, breaking through 15 yuan/kg and 17 yuan/kg in May and June respectively. In June, the company's full breeding cost dropped to 14 yuan/kg, increasing its profit margin. According to Guojin Securities, Muyuan's commercial pig output in the second quarter was 13.675 million heads, with an average sales price of about 16 yuan/kg, and its profit exceeded expectations.

In the first six months of this year, the company slaughtered a total of 32.388 million pigs, a year-on-year increase of 7%. Among them, there were 28.982 million commercial pigs, 3.093 million piglets, and 312,000 breeding pigs, down by -0.33%, 183.76% and 221.65% year-on-year respectively.

Minsheng Securities once disclosed in a research report that based on the average slaughter weight of 115.6 kilograms, Muyuan shares' overall profit per head was around 30 yuan in the first half of this year, and the average profit per head in the second quarter was as high as 191 yuan.

Like Muyuan shares, New Hope, Wens Foodstuffs, Luoniushan and Shennong Group, among other listed pig companies, have released performance forecasts one after another, announcing that they have turned losses into profits or significantly reduced losses. Strangely, under the strong expectation of a rebound in pig prices, these good news did not cause much waves in the secondary market.

On August 5, the first trading day after Muyuan Foodstuff Co., Ltd. disclosed its interim report, the company's stock price opened high and closed low, closing at 44.75 yuan, up 1.22%.

Pork prices have risen

Working hard to fatten pigs but not being able to sell them at a good price is an annoying thing that has happened frequently in the past one or two years. Overall losses for pig companies are the norm, and Zhengbang Technology and Aonong Biotechnology have all gone bankrupt.

In the past two years, pork prices have been low, and consumers have really achieved the freedom of braised pork, but for listed pig companies, it is a cruel situation where they lose money on every pig sold. In 2023, the losses of 19 pig companies were close to 30 billion yuan.

Such a tragic scene was foreshadowed as early as 2020. That year, industry players expanded rapidly, and the next year, production capacity was released in a concentrated manner. The fluctuation of pig prices and the increase in breeding costs caused great pain to pig companies. In addition, the imbalance between supply and demand has kept pig prices at a low level for a long time.

In the first half of this year, the market turned around, with the national average price of live pigs at 15.63 yuan/kg, a year-on-year increase of 3.4%, and profit margins gradually forming.

In May this year, the national pork price returned to above the cost line. In June, the national average price of live pigs rose to 18.15 yuan/kg, a year-on-year increase of 26.1%.

The terminal has a clear sense of this. When buying vegetables in the market, pork belly has risen to more than 20 yuan, and pork ribs are already 30 yuan or more.

The overall recovery of pig enterprises is due to the decline in feed prices. According to public data, the average price of pig feed in the first half of this year was 3.62 yuan per kilogram, a decrease of 7.8% from the previous year.

Qin Jun, secretary to the board of directors of Muyuan Foodstuff Co., Ltd., recently said that the decline in feed prices and the improvement in production performance each accounted for half of the impact on cost reduction.

At the end of June this year, the company's full cost of pig farming dropped to around 14 yuan/kg, a decrease of 1 yuan/kg compared to 2023, and it is confident that it will achieve the cost target of 13 yuan/kg by the end of this year.

Liquidity concerns

Starting from raising 22 piglets as individual farmers in the early 1990s, Qin Yinglin and Qian Ying have accumulated, developed and grown over the past 30 years, eventually defeating Wen's shares, the No. 1 pig farmer, and firmly taking the top spot in the industry. The company has also expanded from a single pig farming business to multiple fields such as slaughtering.

In 2021, Muyuan shares reached its peak, with a total market value of nearly 500 billion yuan, and Qin Yinglin became the richest man in Henan. In recent years, the pig industry has entered a downturn, and the company's stock price has fallen accordingly. Now, the total market value has shrunk to 240 billion yuan.

Qin Yinglin was determined to adopt the self-breeding and self-feeding model from the beginning, building pig farms, purchasing feed, developing vaccines, slaughtering and selling, forming a complete industrial chain. However, the heavy asset development model also constantly tests the company's financial capabilities.

As of the end of the first half of this year, Muyuan shares' total debt scale reached 118.4 billion yuan, and its asset-liability ratio was 61.81%, a decrease of 1.78 percentage points from the end of the first quarter. Although such a debt level is not high in the industry, it still aroused concerns from the outside world.

At the end of the reporting period, the company had a cash balance of RMB 20.36 billion. During the same period, short-term loans and non-liquid liabilities due within one year were RMB 43.152 billion and RMB 10.208 billion, respectively.

On the other hand, high debt has pushed up the company's financial cost expenditure and squeezed profit margins.

In the first half of this year, the company's financial expenses amounted to 1.572 billion yuan, up 5.72% from the same period last year. From 2022 to 2023, the financial expenses will be 2.908 billion yuan and 3.054 billion yuan respectively.

The company has stated that it will continue to optimize its debt structure in the future and gradually reduce financing costs by exploring high-quality financing channels, optimizing the structure of cooperative banks, and replacing high-interest loans with low-interest loans.