Jiangsu Lihua (300761) Report Interpretation

Overview

This earnings review assesses Jiangsu Lihua’s weak 2Q26 profitability, reduced earnings outlook, and valuation against peer Wens. HSBC expects a 2027 hog-price recovery to improve earnings but maintains Reduce because Lihua has limited hog exposure and, in its view, does not justify its relative valuation.

Core views

Lihua’s 1H26 operating results showed volume growth but deteriorating unit economics. Revenue rose 9.3% year-on-year to RMB9.13bn, supported by broiler sales of 278m birds, up 7%, and hog sales of 1.13m head, up 18.6%. Nevertheless, the company recorded a RMB72m net loss, compared with a RMB149m profit in 1H25. The deterioration was concentrated in 2Q26 as both core businesses were near or below breakeven. Yellow-feathered broiler ASP declined from RMB12.25/kg at its February peak to RMB11.11/kg in July, marginally below Lihua’s RMB11.20/kg full cost. Hog prices were RMB9.70-10.32/kg from April to June, well below the approximately RMB11.80/kg full cost in 1H26. HSBC argues that poultry conditions remain difficult because leading producers continue to expand supply. In 7M26, Lihua sold about 330m birds, up 7% year-on-year, while Wens sold about 746m, up 5%. Wens targets 10% growth in 2026 chicken sales and Lihua guides for 6-8% growth, so the report sees capacity expansion continuing and yellow-feather chicken prices remaining under pressure. This weak pricing backdrop, together with year-to-date hog prices, led HSBC to lower its 2026-27 hog-price forecasts and its 2027 chicken-price forecast. It reduced 2026e and 2027e net-profit estimates by 47% and 38% to RMB212m and RMB917m, respectively, and introduced a 2028e estimate of RMB722m. The report identifies hog-price recovery as the key positive driver, expecting hog supply to decrease year-on-year from 4Q26 and hog prices to enter an upcycle in 2027. HSBC therefore expects Lihua’s 2027 net profit to improve year-on-year. However, it considers Lihua a less direct beneficiary than Wens: hogs accounted for about 21% of Lihua’s 2025 revenue versus about 62% for Wens, and Wens’ 7M26 hog-sales volume was 15.8 times Lihua’s. Wens also sold 2.3 times Lihua’s chicken volume, yet had only about six times Lihua’s market capitalization. HSBC concludes that companies with greater hog exposure should have greater earnings elasticity in a hog upcycle, making Lihua’s valuation premium unjustified. HSBC’s forecasts are materially below market expectations because it uses more conservative chicken and hog price assumptions. Its 2026-28 net-profit estimates of RMB212m, RMB917m and RMB722m are 79.0%, 48.4% and 66.1% below consensus estimates of RMB1,006m, RMB1,777m and RMB2,131m. Revenue estimates of RMB19.006bn, RMB20.954bn and RMB21.861bn are also 6.6%, 8.5% and 12.5% below consensus. The report therefore believes the market is overly optimistic about Lihua’s profitability. For valuation, HSBC uses a PB-ROE approach. It retains the 1.49x PB multiple associated with a 10% ROE, in line with Lihua’s 2021-24 historical average. Based on its 2027e ROE estimate of 9.1%, it derives a 1.36x target PB multiple, compared with 1.33x previously. Applying that multiple to 2027e BVPS of RMB11.94 produces the unchanged RMB16.20 target price, about 14% below the RMB18.77 share price. HSBC maintains Reduce, noting that Lihua trades at 1.6x 2027e PB with 9% estimated ROE, versus Wens at 1.7x PB with 30% estimated ROE.

Analysis framework

HSBC first links the earnings loss to sales volumes, livestock selling prices, and full-cost benchmarks. It then assesses supply growth and the expected hog cycle to forecast segment profitability, compares Lihua’s operating exposure and valuation with Wens, revises earnings estimates against consensus, and derives the target price using a price-to-book multiple calibrated to expected ROE.

Methodology notes

• Valuation methodsPB valuation

  PB-ROE valuation approach

  HSBC applies a target price-to-book multiple that corresponds to its expected ROE, then multiplies the resulting target PB by forecast book value per share to calculate the target price.

• Industry AnalysisSupply-demand framework

  Livestock supply and price-cycle analysis

  The report uses production-volume growth, capacity expansion, supply expectations, selling prices, and full-cost levels to assess poultry and hog profitability.

• Industry AnalysisVolume-price decomposition

  Volume and price drivers of earnings

  HSBC separates sales-volume growth from broiler and hog price movements to explain why revenue grew while profitability weakened.

Asset mapping & comparison

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

• Jiangsu Lihua (300761.CH)

  Primary covered company; its earnings are pressured by below-cost broiler and hog prices, and HSBC views its valuation as unattractive.

  Strengths

  Broiler and hog sales volumes grew in 1H26; a 2027 hog-price recovery is expected to support year-on-year profit improvement.

  Weaknesses

  Limited hog exposure relative to Wens, continued poultry supply growth, and earnings forecasts materially below consensus.

  Comparison

  HSBC cites 1.6x 2027e PB and 9% ROE for Lihua versus 1.7x PB and 30% ROE for Wens.

  Risks

  Faster-than-expected industry capacity reduction, better hog-breeding cost control, or larger raw-material price declines could improve profitability beyond HSBC’s assumptions.

• Wens Foodstuff Group (300498.SZ)

  Peer comparator with greater hog exposure and higher expected earnings elasticity in a hog-price upcycle.

  Strengths

  About 62% of 2025 revenue came from hogs; 7M26 hog sales volume was 15.8 times Lihua’s.

  Comparison

  HSBC estimates Wens at 1.7x 2027e PB and 30% ROE, compared with Lihua at 1.6x PB and 9% ROE.

  Risks

  African Swine Fever or other hog diseases, slower-than-expected industry capacity reduction, and higher-than-expected raw-material price hikes.

Key data

• 1H26 revenueRMB9.13bn+9.3% year-on-year
• 1H26 net profitRMB-72mVersus RMB149m profit in 1H25
• Broiler ASPRMB11.11/kg in JulyDown from RMB12.25/kg in February and below RMB11.20/kg full cost
• Hog priceRMB9.70-10.32/kgApril-June range, below approximately RMB11.80/kg 1H26 full cost
• 2026e net profitRMB212mCut 47% from the prior estimate; 79.0% below consensus
• 2027e net profitRMB917mCut 38% from the prior estimate; 48.4% below consensus
• 2027e ROE9.1%Used in deriving the target PB multiple
• 2027e target PB multiple1.36xApplied to RMB11.94 2027e BVPS
• Target priceRMB16.20Unchanged; implies -13.7% downside from RMB18.77

Impact & implications

HSBC expects the hog cycle to improve Lihua’s earnings in 2027, but believes continuing poultry supply growth and Lihua’s comparatively small hog exposure limit the benefit. Its lower price assumptions and below-consensus earnings forecasts underpin the view that the shares remain overvalued relative to Wens.

Risks

• A faster-than-expected industry capacity reduction caused by persistently low yellow-feather broiler prices could raise poultry prices and Lihua’s net profit beyond HSBC’s assumptions.
• Better-than-expected hog-breeding cost control could improve profitability beyond the report’s forecast.
• Larger-than-expected declines in raw-material prices could reduce breeding costs and lessen the expected downside.
• African Swine Fever or other hog diseases could affect the sector.
• Slower-than-expected industry capacity reduction and higher-than-expected raw-material price hikes are stated downside risks for Wens.