Pig Farming Leader Boosts Confidence: Profits Soar, Buybacks Increase
Leading companies continuously control costs downward. The target for Muyuan Foods' full breeding cost in 2024 is 14 yuan/kg, which has already been reduced to 13.7 yuan/kg in August, showing a significant decrease compared to 15 yuan/kg in 2023. As pig prices warm up, the company's profits accelerate, and the introduction of share buybacks is expected to alleviate market concerns about future pig prices.
Single-quarter profits are expected to reach tens of billions, which is the result of Muyuan Foods' third-quarter earnings forecast. With pig prices continuously rising and costs continuously falling, the profit "scissors gap" is widening, and Muyuan Foods has entered a period of accelerated profit realization. At the same time, the company has also introduced a large share repurchase plan. What positive signals does this convey?
In fact, it's not just Muyuan Foods that has seen improved performance. This can be seen from the monthly data previously released by pig farming companies. Due to the continuous rise in pig prices, the performance of all companies has improved.
However, before the policy support for the stock market at the end of September, the performance of pig farming companies' stocks in the secondary market was not eye-catching, and most of them fell to a stage bottom. As an industry leader, Muyuan Foods is a weathervane, and the company has introduced a repurchase plan with a total amount not less than 3 billion yuan and not more than 4 billion yuan.
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Ten days before Muyuan Foods, another leading company, Wens Food, also announced the company's repurchase plan. The repurchase by industry leaders will have a demonstration effect on industry confidence and set an "anchor point" for industry valuation and trends.
Pig prices are rising, and costs are falling.
On October 10, Muyuan Foods was the first among pig companies to disclose earnings forecasts. The company estimates that the net profit attributable to the shareholders of the listed company for the first three quarters of 2024 will be between 10 billion yuan and 11 billion yuan. In contrast, Muyuan Foods lost 1.842 billion yuan in the same period of the previous year, meaning the company has achieved a significant turnaround from loss to profit.
Specifically, for the third quarter of 2024, Muyuan Foods estimates that the net profit attributable to the shareholders of the listed company will be between 9 billion and 10 billion yuan, an increase of 860.63%-967.36% compared to the same period last year.
Regarding the reasons for the performance growth, Muyuan Foods stated that it is mainly due to the company's "increase in pig output and average pig sales price compared to the same period in 2023, and the decrease in pig breeding costs compared to the same period last year."
Coincidentally, on the same day, ST Tianbang also forecasted that the net profit attributable to the shareholders of the listed company for the first three quarters of 2024 is expected to be between 1.301 billion yuan and 1.351 billion yuan, a significant turnaround from a loss of 1.566 billion yuan in the same period of the previous year.It should be noted that ST Tianbang's net profit attributable to the mother company after deducting non-recurring gains for the first three quarters was only 119 million to 169 million yuan, due to the company's sale of a stake in a joint venture in the first quarter, contributing an investment income of 995 million yuan.
The third quarter was essentially unaffected by this. From July to September 2024, the company achieved a net profit attributable to the mother company of 460 million to 510 million yuan, with the net profit after deducting non-recurring gains also not significantly different. After deducting non-recurring gains, ST Tianbang's net profit was mainly contributed by the profits of the third quarter.
The trend of pig prices can be discerned from the company's monthly sales data. In the first quarter of 2024, there was a Spring Festival peak season, but pig prices were not strong during the peak season. The price of Muyuan Foodstuff's commercial pigs in the first quarter was around 14 yuan/kg, while the average complete cost of pig farming for Muyuan Foodstuff in 2023 was 15 yuan/kg.
Pig prices began to rise in the second quarter. In April 2024, the price of Muyuan Foodstuff's commercial pigs was 14.8 yuan/kg, and by June it had risen to 17.73 yuan/kg. Compared to the price of around 14 yuan/kg in the first quarter, Muyuan Foodstuff's pig prices had already increased by about 25%.
During investor research, Muyuan Foodstuff stated that the company's goal is to achieve an average complete cost of pig farming of 14 yuan/kg for the whole year of 2024, and hopes to reduce it to 13 yuan/kg by the end of the year. Since the beginning of the year, the company's complete cost of pig farming has shown a continuous downward trend, with the complete cost of pig farming in June approaching 14 yuan/kg. By August, it had dropped to around 13.7 yuan/kg.
The upward trend of pig prices has not stopped. In July, the price of Muyuan Foodstuff's commercial pigs was 18.3 yuan/kg, and in August it peaked at 19.71 yuan/kg. Although there was a slight pullback in September, it also reached 18.65 yuan/kg. Pig prices are much higher than the complete cost of farming, so profitability is not surprising.
Historically, Muyuan Foodstuff has only had two single quarters of profits over ten billion, which were the third quarter of 2020 and the fourth quarter of 2022. This means that the third quarter of 2024 will be another peak of profitability for Muyuan Foodstuff.
Buyback boosts confidence
Pig prices continue to run at high levels, and companies are profitable, but before policy support for the stock market, the stock performance in the secondary market was not eye-catching.
At the end of September, the stock price of Muyuan Foodstuff once fell to 35.02 yuan per share, only a step away from the lowest point of 34.24 yuan per share at the beginning of the year.Not only Muyuan Foods, but other companies such as Wens Foodstuff Group and New Hope also saw their stock prices weaken. Among them, Wens Foodstuff Group not only set a new low for the year but also a new low for the company in about three years.
Before the central bank and other departments released favorable policies, leading pig enterprises had already begun "self-rescue". On September 27, before the National Day holiday, Muyuan Foods announced that the company planned to repurchase its shares at a price not exceeding 58.6 yuan per share for employee stock ownership plans or equity incentive plans.
The scale of this repurchase is no less than 3 billion yuan and no more than 4 billion yuan. As of October 11, Muyuan Foods closed at 42.28 yuan per share, and the significant gap between the repurchase price and the stock price means there is ample room for maneuver in the repurchase.
This is not the first time Muyuan Foods has repurchased shares, but the repurchase effort has significantly increased. In December 2022, Muyuan Foods initiated its first repurchase. The company planned to repurchase between 1 billion yuan and 2 billion yuan, with a maximum repurchase price of 72.24 yuan per share.
As of May 24, 2023, Muyuan Foods completed its first repurchase. The company repurchased a total of 41.87 million shares, spending 2 billion yuan, reaching the upper limit of the repurchase amount. This means that if this time also reaches the upper limit, the repurchase scale will double to 4 billion yuan.
Based on the maximum repurchase amount of 4 billion yuan and the maximum repurchase price of 58.6 yuan per share, it is estimated that about 68.26 million shares can be repurchased, accounting for 1.25% of Muyuan Foods' current total share capital. Since the actual price of Muyuan Foods is far from the repurchase limit, the number of repurchased shares is expected to significantly increase.
In addition to Muyuan Foods, another leading pig farming company, Wens Foodstuff Group, also announced the start of a repurchase. Ten days before Muyuan Foods announced the repurchase, Wens Foodstuff Group announced that the company plans to repurchase its shares with its own funds, not exceeding 1.8 billion yuan and not less than 900 million yuan.
The repurchase price does not exceed 27.01 yuan per share, and the repurchased shares are used to implement employee stock ownership plans or equity incentives. As of October 11, Wens Foodstuff Group's stock price was 18.62 yuan per share, and the repurchase space is also vast.
Muyuan Foods and Wens Foodstuff Group launched repurchase plans one after another. Coincidentally, when they first repurchased, the two companies also "cooperated tacitly," choosing similar timing. Muyuan Foods initiated its first repurchase on December 13, 2022, and Wens Foodstuff Group announced the start of the repurchase on December 5 of that year, with a difference of less than 10 days.
Pig prices are easy to rise but difficult to fall.When the buyback was first initiated, the stock prices of the two companies were at a phased low point in the secondary market.
AVIC Securities stated that this buyback is the largest number of repurchases by the pig farming leader, Muyuan Foods, in recent years, which will strongly support market confidence in the company's stock price. At the same time, as the anchor for sector valuation, it is also expected to bring a significant boost to the valuation of other targets in the industry and the overall sector valuation.
In September, one of the important reasons for the weakening of pig farming company stock prices was the monthly decline in pig prices. Wens Food's pig price fell by nearly 7% month-on-month, and Muyuan Foods' average selling price for commercial pigs in September was 18.65 yuan/kg, a decrease of 5.38% compared to August.
From the industry perspective, data from Boyar and Xin shows that on August 15, pig prices reached a phased high of 21 yuan/kg. Approximately two months later, on October 10, the average pig price was 17.58 yuan/kg, a drop of 16.29% from the high point.
On the consumer side, data from the Ministry of Agriculture and Rural Affairs shows that on October 10, the average wholesale price of pork was 25.04 yuan/kg, a decrease of 9.83% from the phased high of 27.77 yuan/kg on August 22. Both on the breeding side and the consumer side, pig prices are indeed experiencing a correction.
The number of breeding sows, which determines the subsequent scale of pig outflow, is no longer decreasing. In April 2024, the number of breeding sows decreased from a high point to 39.86 million heads, just a step away from the normal target of 39 million heads set by the Ministry of Agriculture and Rural Affairs. However, after that, the number of breeding sows rebounded slightly, and as of the end of August, the inventory of breeding sows was 40.36 million heads, returning to the level at the beginning of 2024.
However, the slight increase in breeding sows cannot bring an incremental impact on the current pig outflow. The benchmark supply of pigs depends on breeding sows and production efficiency. The fourth quarter of 2023 and the first quarter of 2024 were the accelerated stages of breeding sow capacity reduction, which corresponds to the pig supply in the fourth quarter of 2024 still being difficult to increase significantly.
Moreover, as the demand season approaches and supply is relatively insufficient, the behavior of farmers holding back and rearing pigs for a second time is expected to increase, which will also support the pig price to start a new round of increases.
China Post Securities believes that after 16 months of pig capacity reduction, the cumulative reduction amplitude was 9.2%. From November 2023 to June 2024, over an 8-month period, the capacity has been continuously lower than the lowest point of the 2021-2022 cycle.
And in this round of pig capacity recovery, there were only three months from May to July 2024, with low capacity recovery. This corresponds to a slow increase in pig outflow in the fourth quarter of 2024 and the first three quarters of 2025, and pig supply will remain at a low level for a longer period.
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