The road to recovery is longer, but Muyuan Foodstuff is still viewed as the industry cost leader

Overview

This report is Morgan Stanley's earnings review and valuation update for Muyuan Foodstuff Co. Ltd. The report believes 2026 hog prices will be lower than previously expected, supply clearance will be slower than expected, and the industry recovery timeline will be postponed from 2H26 to 2027. Nevertheless, Muyuan Foodstuff is still viewed as the best-positioned industry leader due to its leading cost structure, biological efficiency, and scaled operations, supporting the maintenance of an Overweight rating.

Core views

The core view is that earnings forecasts are being revised downward, but relative competitiveness remains strong. Morgan Stanley forecasts the 2026 industry average hog price at Rmb11/kg, down 23% year over year, followed by a recovery to Rmb13.6/kg in 2027, up 23% year over year. Low hog prices and feed cost pressure will weigh on near-term earnings, with Muyuan Foodstuff expected to post a 2026 loss of Rmb0.72/share. However, the company's MSY of approximately 25, significantly above the industry average of 20, and its forecast 2026 fully loaded farming cost of Rmb11.5/kg should provide cost resilience during the industry trough.

Analysis framework

The report reassesses the company's earnings and target price by updating assumptions for hog prices, sales volume, unit costs, and valuation multiples. The analytical framework includes 2026-2028 earnings forecasts, gross profit by business segment, comparisons of hog prices and farming costs, historical valuation comparisons for capacity-reduction cycles, and risk-reward analysis under bull, base, and bear scenarios.

Methodology notes

• Earnings ForecastMorgan Stanley ModelWare

  Revenue, cost, profit, cash flow, and valuation estimates based on Morgan Stanley's proprietary ModelWare framework.

  The report discloses that, unless otherwise stated, financial metrics are based on Morgan Stanley's ModelWare framework, while 2026-2028E earnings forecasts reflect adjustments to hog price, sales volume, and unit cost assumptions.

• Valuation MethodP/E valuation

  Based on 2027E EPS, applying 13x P/E to the A-shares, corresponding to approximately 12x P/E for the H-shares.

  The valuation multiple was changed from the previous 18x 2026E P/E to 13x 2027E P/E to reflect a later and more gradual industry recovery; the multiple is broadly consistent with valuation levels in the later stages of previous capacity-reduction cycles.

• Scenario AnalysisRisk Reward

  Assessing target price and key-variable sensitivity through bull, base, and bear scenarios.

  The A-share base-case target price is Rmb48, the bull-case target price is Rmb76, and the bear-case target price is Rmb18. Key variables include hog prices, capacity reduction, operating efficiency, fresh pork business growth, and disease risk.

Asset mapping & comparison

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

• Muyuan Foodstuff A-shares 002714.SZ / 002714 CH

  Core covered asset in the report

  Strengths

  Industry-leading cost structure, MSY of approximately 25 versus the industry average of 20, strong economies of scale and operating efficiency, with long-term potential to benefit from increasing industry concentration.

  Weaknesses

  Weak hog prices and high feed costs in 2026, with earnings forecasts significantly downgraded and a short-term loss expected.

  Comparison

  Compared with the industry average, Muyuan Foodstuff has superior biological efficiency and cost control and is therefore considered the best-positioned industry leader during the trough of the cycle.

  Risks

  Hog prices below expectations, continued price pressure caused by supply restocking, disease affecting shipment volumes, and fresh pork business growth below expectations.

• Muyuan Foodstuff H-shares 2714.HK

  H-share valuation mapping for the same company

  Strengths

  Benefits from the same company fundamentals and cyclical recovery upside as the A-shares.

  Weaknesses

  The H-share target price was also lowered, reflecting adjustments to earnings forecasts and the valuation framework.

  Comparison

  The H-share base-case valuation implies approximately 12x P/E, below the A-share 13x P/E framework.

  Risks

  Hong Kong equity market risk appetite, liquidity, and valuation discounts may affect share price performance.

Key data

• A-share RatingOverweightMorgan Stanley maintained its rating.
• A-share Target PriceRmb48.00Lowered from Rmb57.00, a decrease of approximately 16%.
• A-share Current PriceRmb39.30Closing price as of 2026-07-28.
• Implied Target Price Upside22%Based on the Rmb48 target price and Rmb39.30 current price.
• H-share Target PriceHK$49.00Lowered from HK$58.00.
• 2026E EPSRmb(0.72)The 2026 earnings forecast was revised to a loss.
• 2027E EPSRmb3.682027E EPS was lowered 22%.
• 2026 Industry Average Hog Price ForecastRmb11/kgDown 23% year over year, assuming only a seasonal rebound in 3Q26.
• 2027 Industry Average Hog Price ForecastRmb13.6/kgUp 23% year over year, with a more meaningful cyclical recovery postponed to 2027.
• 2026 Fully Loaded Farming Cost ForecastRmb11.5/kgReflecting the company's cost advantage and operating efficiency.
• 1H26 Earnings GuidanceNet loss of Rmb5.7-6.7bnMainly due to a 28% year-over-year decline in realized live hog ASP to approximately Rmb10.4/kg.
• 2026E Net ProfitRmb(4.156)bnMorgan Stanley ModelWare net profit forecast.
• 2027E Net ProfitRmb21.212bnReflecting earnings upside following hog price recovery and efficiency improvements.

Impact & implications

The cuts to the target price and earnings forecasts indicate that the market needs more time to wait for industry supply clearance and hog price recovery, while near-term profit volatility remains high. However, maintaining an Overweight rating indicates that Morgan Stanley still favors Muyuan Foodstuff's relative competitive advantages during the downcycle: lower costs, higher efficiency, and stronger scale operations. If hog prices recover faster than expected, earnings upside could be released significantly.

Risks

• Industry hog prices fall below expectations, particularly if supply restocking or slower-than-expected capacity reduction prolongs the low-price environment.
• Feed costs remain elevated, compressing unit farming profits.
• Widespread outbreaks of swine disease materially affect the company's or industry's live hog shipment volumes.
• Fresh pork business growth is weaker than expected, reducing revenue diversification and earnings stability.
• A delayed industry recovery causes valuation multiples to remain under pressure.

What to watch

• The company's capacity-reduction progress in 2H26 and its impact on 3Q peak-season hog prices.
• Whether Muyuan Foodstuff's cost efficiency continues to improve, particularly unit COGS and fully loaded farming costs.
• The industry's sow inventory and the pace of supply rationalization.
• Whether actual 2026 hog prices are consistent with the Rmb11/kg base-case assumption or approach the bull/bear scenarios.
• Whether the 2027 hog price recovery materializes and drives a recovery in EPS and net profit.