China’s hog industry Report Interpretation

Overview

HSBC’s industry update argues that China’s accelerating breeding-sow destocking is laying the groundwork for a 2027 hog-price recovery. The report challenges the view that productivity gains will keep supply excessive and continues to prefer lower-cost industry participants.

Core views

HSBC reports that China’s breeding-sow inventory fell 1.61% month-on-month and 7.1% year-on-year in August 2026, a faster decline than July’s 1.48% month-on-month and 6.6% year-on-year reductions, based on SCI data. It interprets the acceleration as evidence that large farms are reducing sow stocks in line with policy guidance while small and medium-sized farmers are destocking under the pressure of prolonged deep losses. The culled-sow-to-hog price ratio falling below 60% is cited as additional support. HSBC expects this process to continue through 3Q26 and believes sustained sow destocking should reinforce a 2027 hog-price upcycle. The report expects sow capacity to stay low through end-2026. Small and medium-sized farmers are expected to keep cutting sow inventory until hog prices return to RMB12/kg because their cash flow has been strained after nearly a year of losses. Large farmers, by contrast, are not expected to reduce inventory further once their destocking targets are met. HSBC therefore expects capacity reduction to accelerate in 3Q26 but slow in 4Q26. Even if industry profitability returns in 4Q26, it argues that cash-constrained smaller farms cannot rapidly rebuild production and large breeding enterprises may be restrained by policy controls. HSBC disputes market concerns that productivity improvement could offset the supply impact of destocking. SCI estimates 2025 market pigs per sow per year at 21.52, implying that 32.5m sows could supply roughly 700m hogs, below MARA’s current 37.5m-sow target. HSBC instead calculates full-sample MSY at 17.8 using 2025 official production of 719.73m hogs and an average sow inventory of 40.43m, treating sow inventory as a 10-month leading indicator. It says SCI’s sample is tilted toward large farms, which represented 78% of the sample and generally have superior production efficiency, while official production also reflects idle or unsuccessful breeding capacity. On this basis, HSBC considers the 37.5m-sow target reasonable. It notes that a material industry-wide productivity gain could still allow further inventory reduction, and that future policy design—whether it targets sow inventory or actual hog output—will determine whether productivity gains reduce sow numbers or increase supply. HSBC maintains that cost advantage will be decisive in the coming price recovery and continues to favor Muyuan and Wens, both rated Buy. Muyuan’s unchanged RMB53.30 target price is based on a 10x EV/EBITDA multiple applied to average 2026-27 EBITDA of RMB37,282m; its current price was RMB42.37 at the 15 September close, implying 25.8% upside. Wens retains a RMB18.90 target and Buy rating, based on a 2.61x target P/B multiple and 2027 estimated ROE of 26.1%; the RMB14.99 price implied 26.1% upside. For Dabeinong, HSBC keeps Buy but cuts the target price to RMB4.90 from RMB5.00, implying 54.6% upside from RMB3.17. Its 1H26 attributable net loss was RMB677m, including a RMB502m 2Q26 loss as hog prices weakened. HSBC lowers its 2026 hog-price assumption to RMB11.5/kg from RMB12.6/kg, forecasts a RMB219m 2026 net loss, and cuts 2027 net profit 14.5% to RMB988m; it introduces a 2028 estimate of RMB963m. Feed revenue and volume each grew about 9% year-on-year in 1H26, but margins weakened, while seed sales volume rose about 12%. The valuation remains SOTP: a 1.43x P/B approach for hog production, feed and seed businesses, plus a DCF for the GM transformant business using a 6.3% WACC and 0.5% terminal growth rate. Tecon remains Hold, though its target price rises to RMB7.50 from RMB7.20; the target implies 6.1% downside from RMB7.99. HSBC lowers its 2026 hog-price estimate to RMB10.5/kg from RMB12.4/kg after a RMB441m 1H26 net loss, but raises 2026-27 hog-production assumptions to 4.75m and 4.8m heads from 3.3m and 3.5m following the June 2026 acquisition of Qiangdu Animal Husbandry. It forecasts a RMB171m 2026 loss, raises 2027 net profit to RMB923m from RMB855m, and introduces a RMB767m 2028 estimate. The valuation uses a P/B-ROE framework across hog breeding and a 15.2x P/E approach for animal vaccine and feed businesses. New Hope remains Reduce despite a target-price increase to RMB6.20 from RMB6.10, implying 15.1% downside from RMB7.30. Its RMB1.7bn 1H26 net loss was below HSBC’s estimate as hog prices were weaker than expected. HSBC cuts its 2026 hog-price assumption to RMB11.50/kg from RMB12.90/kg and lowers 2026-27 production assumptions because capacity has continued to contract since 2025, while reducing hog-cost estimates due to better-than-expected cost control. It forecasts a RMB1,527m 2026 loss, raises 2027 net profit to RMB3,076m from RMB1,917m, and introduces a RMB1,326m 2028 forecast. The target price uses a 1.3x target P/B multiple based on 2027 estimated ROE of 13%.

Analysis framework

HSBC first assesses industry capacity using SCI inventory and price-ratio data, then tests the productivity-versus-supply debate by comparing SCI sample data with official production and sow-inventory data. It links the capacity outlook to a 2027 price-cycle view, evaluates company earnings sensitivity to hog prices and production volumes, and applies company-specific valuation frameworks to derive target prices.

Methodology notes

• Industry AnalysisSupply-demand framework

  Breeding-sow capacity and hog-supply analysis

  The report treats sow inventory as a leading indicator of future hog supply and uses destocking, farmer cash flow, policy controls and production efficiency to assess the likely price cycle.

• Industry AnalysisVolume-price decomposition

  Sensitivity of net profit to hog prices and production volumes

  HSBC presents scenario tables showing how changes in hog selling prices and production volumes affect 2027 profit forecasts for Dabeinong, Tecon and New Hope.

• Valuation methodsEV/EBITDA valuation

  Muyuan valuation using an EV/EBITDA multiple

  HSBC applies a 10x peer historical-average EV/EBITDA multiple to Muyuan’s average 2026-27 EBITDA to derive its target price.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Dabeinong and Tecon sum-of-the-parts valuation

  The report values distinct business lines separately using P/B-ROE, P/E and, for Dabeinong’s GM transformant business, DCF, then combines the segment values.

Asset mapping & comparison

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

• Muyuan Foods (002714 CH)

  Preferred cost leader positioned for the expected 2027 industry-cycle reversal.

  Strengths

  Cost leadership and industrial-chain extension.

  Comparison

  HSBC prefers Muyuan alongside Wens among covered hog producers.

  Risks

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

• Wens Foodstuff (300498 CH)

  Preferred cost leader positioned for the expected 2027 industry-cycle reversal.

  Strengths

  HSBC maintains Buy and expects the industry cycle to reverse.

  Comparison

  HSBC prefers Wens alongside Muyuan among covered hog producers.

  Risks

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

• Dabeinong (002385 CH)

  Covered Buy rated company with exposure to hog production, feed, seed and GM-transformant businesses.

  Strengths

  Seed sales volume rose about 12% year-on-year in 1H26; seed business is strategic core.

  Weaknesses

  Weaker 2026 hog-price assumptions and lower feed gross-margin estimates reduce earnings forecasts.

  Comparison

  Target price cut to RMB4.90 from RMB5.00 under an unchanged SOTP approach.

  Risks

  Slower-than-expected growth in feed production; slower-than-expected progress in genetically modified seed volumes; worse-than-expected decline in breeding costs.

• Tecon Biology (002100 CH)

  Covered Hold rated company whose outlook incorporates acquired hog capacity and weaker feed and vaccine margins.

  Strengths

  2026-27 production estimates rise following the Qiangdu Animal Husbandry acquisition.

  Weaknesses

  2026 earnings are revised to a net loss amid lower hog-price assumptions.

  Comparison

  Target price raised to RMB7.50 from RMB7.20 but remains below the RMB7.99 current price.

  Risks

  Intense competition in animal-vaccine products; sharp raw-material price increases; lower-than-expected feed-sales growth.

• New Hope Liuhe (000876 CH)

  Covered Reduce rated company with improved cost-control assumptions but continuing capacity and price pressure.

  Strengths

  Better-than-expected hog cost control supports the higher 2027 profit estimate.

  Weaknesses

  1H26 net loss was below HSBC’s estimate and 2026-27 production assumptions were lowered.

  Comparison

  Target price increases to RMB6.20 from RMB6.10 but implies 15.1% downside.

Key data

• August 2026 breeding-sow inventory change-1.61% m-o-m; -7.1% y-o-yFaster than July’s -1.48% m-o-m and -6.6% y-o-y, according to SCI.
• SCI 2025 MSY estimate21.52 hogs/sow/yearWould imply roughly 32.5m sows could supply 700m hogs.
• Official-data 2025 MSY17.8 hogs/sow/yearCalculated from 719.73m hogs produced and 40.43m average breeding sows.
• MARA breeding-sow inventory target37.5m headsHSBC considers the target reasonable using its full-sample productivity measure.
• Dabeinong 2026e/2027e net profitRMB-219m / RMB988m2027 estimate is cut 14.5% from RMB1,157m.
• Tecon 2026e/2027e net profitRMB-171m / RMB923m2027 estimate is raised from RMB855m.
• New Hope 2026e/2027e net profitRMB-1,527m / RMB3,076m2027 estimate is raised 60% from RMB1,917m.

Impact & implications

HSBC believes ongoing capacity reduction can tighten the industry’s supply backdrop and support a 2027 hog-price recovery. It views production-cost leadership as the key differentiator in that environment, supporting its preference for Muyuan and Wens, while company earnings remain highly sensitive to realised hog prices, production volumes, feed costs and capacity trends.

Risks

• African Swine Fever or other hog diseases could weaken industry and company outcomes.
• Industry capacity reduction could proceed more slowly than HSBC expects.
• Raw-material price increases could pressure feed costs and margins.
• Dabeinong faces risks from slower feed-production growth, slower genetically modified seed-volume progress and a weaker-than-expected decline in breeding costs.
• Tecon faces intense animal-vaccine competition, higher raw-material prices and weaker-than-expected feed-sales growth.

What to watch

• Monthly breeding-sow inventory changes and whether destocking continues through 3Q26.
• Whether hog prices recover to RMB12/kg, a threshold HSBC identifies as relevant for smaller farmers’ capacity decisions.
• Whether the industry returns to profitability in 4Q26 and whether capacity can rebound despite cash constraints and policy controls.
• Policy evolution toward controlling breeding-sow inventory versus actual hog-production volume.
• Hog prices, production volumes, raw-material costs and company cost control, which drive the earnings-sensitivity scenarios.