New Hope Liuhe: Maintain BUY, awaiting a recovery from the hog-price trough

Overview

This report covers New Hope Liuhe Co Ltd. Its core view is that the company is entering a recovery window following the trough of the hog cycle. DBS believes that a larger-than-expected decline in hog prices in 1H26 put pressure on 2Q26 earnings and led to a substantial downward revision to FY26F earnings forecasts. However, prices below cost are unsustainable, and the decline in the breeding-sow population should lead to tighter supply after the approximately 10-month production cycle. Together with holiday demand in the second half, this should enable the company to achieve sequential improvements in hog prices and margins in 2H26.

Core views

First, industry live hog prices have fallen below the cost line. Widening losses should drive the exit of high-cost capacity, with supply potentially tightening from 3Q26. Second, cost reduction is key to the earnings recovery. Farming costs have already declined rapidly, with FY26F average costs expected to be approximately RMB11.6/kg and a further low-single-digit decline forecast for FY27F. Third, the feed business offers both defensive qualities and growth potential. High domestic hog inventories support demand, while overseas markets, particularly Belt and Road markets, remain growth engines. Fourth, although the target price has been lowered from CNY10.80 to CNY8.10, DBS maintains BUY, believing that the share-price correction has sufficiently reflected hog-price pressure.

Analysis framework

The report's analytical framework focuses on the hog-price cycle, the breeding-sow population and supply lag, changes in the company's unit costs, feed-business sales volume and capacity utilisation, earnings forecast revisions, and DCF valuation. It links changes in hog prices, costs, gross margins and the target price to the 12-month investment rating.

Methodology notes

• Valuation methodsDCF

  discounted cash flow valuation

  The CNY8.10 target price is based on DCF valuation, with key assumptions including a WACC of 7.0% and a perpetual growth rate of 1.5%.

• Industry cycleLive hog supply-cycle analysis

  breeding-sow inventory leads supply changes

  The report uses the approximately 10-month production cycle to explain how a decline in the breeding-sow population will translate into tighter live hog supply from 3Q26 and drive a sequential recovery in hog prices in 2H26.

• Earnings driversUnit-cost and segment gross-margin analysis

  cost reduction drives earnings recovery

  The report tracks the continued decline in farming costs from RMB12.2/kg in 1Q26 to approximately RMB11.6/kg in FY26F, and uses this to forecast a recovery in the live hog segment's gross margin from its FY26F low to a higher level in FY27F.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• New Hope Liuhe Co Ltd equity / 000876 CH

  directly covered asset

  Strengths

  China's largest feed producer and a leading live hog producer; relatively rapid cost reductions; stable domestic demand and strong overseas expansion in the feed business.

  Weaknesses

  Near-term live hog prices are below cost, and FY26F has been revised to a net loss; relatively high gearing.

  Comparison

  The report states that the company is China's largest feed producer and ranks third among live hog producers; its pace of cost reduction is relatively fast among major peers.

  Risks

  Volatility in live hog, poultry and feed prices, as well as disease outbreaks.

• China hog farming cycle

  core earnings driver

  Strengths

  A decline in the breeding-sow population and seasonal demand could drive a recovery in hog prices in 2H26.

  Weaknesses

  Prices in 2Q26 were below cost, resulting in significant industry losses.

  Comparison

  The industry's average production cost is approximately RMB13/kg, compared with an average price of approximately RMB10.1/kg in 2Q26.

  Risks

  If capacity exits more slowly than expected or demand is insufficient, the recovery in hog prices could be delayed.

• Feed business

  defensive and growth segment

  Strengths

  Overseas feed sales grew by more than 20% in 2025, overseas capacity utilisation was approximately 86%, and Belt and Road markets offer long-term opportunities.

  Weaknesses

  The group's overall capacity utilisation is approximately 60%, leaving continued pressure to improve utilisation.

  Comparison

  Overseas operating capacity utilisation was approximately 86%, significantly higher than the group's overall level of approximately 60%.

  Risks

  Feed raw-material prices, execution of overseas expansion and regional demand fluctuations.

Key data

• RatingBUYDBS maintains its BUY rating.
• Target priceCNY8.10The previous target price was CNY10.80 and was lowered based on DCF valuation.
• Latest traded priceCNY6.44The Last Traded Price listed in the report.
• 2Q26 industry average live hog priceapproximately RMB10.1/kgBelow the industry's average production cost of approximately RMB13/kg.
• Company production cost in 1Q26RMB12.2/kgDown approximately RMB1/kg year on year.
• FY26F average production cost forecastapproximately RMB11.6/kgA further low-single-digit decline is expected in FY27F.
• FY26F earnings forecast revisionrevised from net profit of RMB178mn to a net loss of RMB1.5bnMainly due to lower hog-price assumptions.
• FY27F earnings forecast revisiondown 5%Reflecting lower hog-price assumptions.
• 2025 feed sales volume26mn tonnesThe company is China's largest feed producer, with approximately 8.7% market share.
• 2025 live hog sales volume17.5mn headsThe company ranks third among China's leading live hog producers, with approximately 2.4% market share.
• 2025 revenue mixfeed 71%, hog farming 27%The two core business segments.
• Net gearing at end-202569.9%69.0% in 2024.

Impact & implications

The investment implication is that weak hog prices have depressed near-term earnings and valuation, but if hog prices recover sequentially in 2H26 as expected and the company continues to reduce costs, an earnings inflection point could emerge in the second half of 2026 and become more pronounced in 2027. Stable growth in the feed business provides some buffer, making the investment thesis less dependent on a single rebound in hog prices.

Risks

• Volatility in live hog, poultry and feed prices.
• Disease outbreaks may affect farming efficiency, sales volume and costs.
• A weaker-than-expected recovery in hog prices or slower-than-expected transmission of supply contraction.
• Changes in the prices of feed raw materials such as corn and soybean meal may affect the path of cost reductions.
• Overseas feed expansion faces market, operational and regional execution risks.

What to watch

• Whether live hog prices recover sequentially in 2H26.
• Whether the decline in the breeding-sow population translates into actual supply tightening after 3Q26.
• Whether the company's farming costs can decline by more than RMB1/kg within the year.
• Whether the FY26F live hog segment gross margin can remain positive and recover toward FY27F.
• Whether external feed sales achieve an incremental 2–3mn tonnes and double-digit growth.
• The sensitivity of the target price to the key DCF assumptions of a 7.0% WACC and a 1.5% perpetual growth rate.