Deteriorating cash runway may accelerate hog supply clearing; Goldman Sachs maintains Buy on Muyuan H/A

Overview

This report focuses on China's hog cycle and the valuations of major listed hog producers. Goldman Sachs believes that although the recovery in hog prices from the bottom has taken longer than expected, the industry has entered a deep loss-making phase, with almost all producers in cash-loss territory for most of 1H26. As cash runways shorten, debt pressure rises, policy continues to push capacity adjustment, and some high-cost or financially constrained producers exit, supply-side response may accelerate, driving a hog price inflection point in 2H26E.

Core views

The core judgments include: first, weak hog prices in 1H26 were mainly caused by soft pork demand and slower supply adjustment among smaller farmers; second, cash losses and capital constraints are making industry clearing pressure more visible; third, sow inventory and slaughter volume models indicate that supply-demand in 2H26E may turn into a shortage; fourth, after the recent pullback in hog stocks, valuation risk-reward has improved, with Muyuan-A/H the most attractive due to its low cost base, leading market share, and valuation below replacement cost.

Analysis framework

The report analyzes cash costs, listed company financial statements, cash burn rates, breeding sow and effective sow inventories, slaughter volumes, pork demand, import volumes, frozen meat inventories, feed sales, policy targets, and asset-based valuation, and links hog price elasticity with the earnings and valuation scenarios of major companies.

Methodology notes

• Industry supply-demandHog S/D balance model

  Uses breeding sows, effective sows, slaughter volume, weight, imports, and domestic demand to estimate the supply-demand gap.

  Goldman Sachs expects a 6% supply surplus in 1H26E, turning into a 5% supply deficit in 2H26E, supporting a rebound in hog prices from low levels.

• Financial stress testCash runway analysis

  Uses the financial data of listed hog producers and current hog prices to estimate how long companies can withstand losses.

  At current hog prices, 4 of 14 listed hog producers had less than 6 months of cash runway as of 1Q26, and an estimated 7 had less than 6 months as of 2Q26, indicating rising capital constraints and supply exit risk.

• Valuation methodsAsset-based valuation and EV/head

  Uses replacement cost, historical trough EV/head, and mid-cycle earnings value to assess bottom-of-cycle valuations for hog producers.

  Muyuan-H's current price is below estimated replacement-cost value and has fallen below the historical trough EV/head range, so Goldman Sachs believes it offers solid downside protection and upside elasticity.

• Company valuationP/E and SOTP valuation

  Applies near-term P/E, long-term P/E, or sum-of-the-parts valuation to different businesses, then discounts back to the current year.

  Muyuan's target price is based on the average of near-term and long-term valuation; Wens and New Hope Liuhe use P/E or SOTP frameworks for hogs, poultry, feed, food processing, and other businesses.

Asset mapping & comparison

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

• Muyuan Foods (A) 002714.SZ / Muyuan Foods (H) 2714.HK

  Core recommended name; maintain Buy/Buy.

  Strengths

  Leading hog shipment scale in China and globally, low-cost advantage, breeding and feed efficiency, integrated slaughtering, and lower future capital expenditure intensity.

  Weaknesses

  Current earnings remain pressured by weak hog prices, with significant profit volatility at the bottom of the cycle.

  Comparison

  Relative to Wens and New Hope Liuhe, Muyuan has a better cost position, higher market share, valuation below replacement cost, and greater upside.

  Risks

  Hog price uncertainty, disease prevention and control, execution of cost reduction, changes in protein demand, and transition to the next generation of management.

• Wens Foodstuff Group 300498.SZ

  Covered company; maintain Neutral.

  Strengths

  A major Chinese hog producer with a leading position in yellow-feathered chicken farming; improvement in the hog cycle and recovery in poultry profits can support earnings.

  Weaknesses

  Current valuation already fairly reflects earnings improvement in both hog and poultry businesses, with less elasticity than Muyuan.

  Comparison

  Less upside than Muyuan; relative to New Hope Liuhe, improvement in the poultry business mix offers some support.

  Risks

  Hog price volatility, breeding sow management, capacity expansion pace, disease and biosecurity, and changes in chicken prices and sales volume.

• New Hope Liuhe 000876.SZ

  Covered company; maintain Neutral.

  Strengths

  Business spans feed, hog farming, and food processing, while overseas feed operations can partly offset margin pressure in domestic hog feed.

  Weaknesses

  Relatively high cost among leading hog producers, with earnings under pressure during weak hog price periods; domestic feed operations face share competition from mid-sized and family farms.

  Comparison

  Compared with Muyuan and Wens, the cost disadvantage in hog farming is more pronounced, and target price upside is lower.

  Risks

  Upside and downside in hog prices, pace of capacity expansion, breeding and project execution, disease prevention and control, cost control, and competition in the feed business.

Key data

• 1Q26A average hog priceRmb11.5/kgCompared with cash costs of Rmb11.6-12.9/kg for large producers and Rmb13.3-13.7/kg for marginal suppliers, the industry was already near or below cash cost.
• 2Q26A average hog priceRmb9.5/kgPrices fell further below the cost line, significantly shortening cash runways.
• Proportion of listed hog producers with less than 6 months of cash runway1Q26 about 30%; 2Q26 about 50%The sample consists of 14 listed hog producers, assuming other conditions remain unchanged.
• 2H26E baseline hog priceRmb15.0/kgGoldman Sachs maintains its view of a hog price rebound in 2H26E, versus current spot at about Rmb9.4/kg.
• 2027E baseline hog priceRmb15.3/kgReflects continued cyclical recovery after supply contraction.
• Change in supply-demand balance1H26E supply surplus 6%; 2H26E supply deficit 5%The shift from surplus to shortage is the core of the report's bullish view on a 2H26 price rebound.
• MOA breeding sow target37.5 million headThe 2026 target is about 4% below the current level, helping to drive further industry liquidation.
• Effective sow inventory forecastDeclining to 28.5 million head by 3Q26EA further contraction of about 8% from the end of December 2025.
• Sow liquidation at the top three hog producersDown 8% by 1Q26 versus mid-2025Large producers liquidated earlier, but adjustment in the rest of the industry was milder.
• Muyuan-A/H rating and upsideBuy; Muyuan-A upside 53%, Muyuan-H upside 94%Target prices are Rmb51.50 and HK$56.50, respectively.
• Ratings on Wens and New Hope LiuheBoth NeutralTarget prices are Rmb14.00 and Rmb6.50, with upside of 15% and 7%, respectively.

Impact & implications

If Goldman Sachs' supply contraction thesis plays out, hog prices may recover rapidly from loss-making lows in 2H26E, with low-cost and financially stronger industry leaders benefiting first; high-cost companies with short cash runways and greater debt pressure may face higher risks of exit or restructuring. For equity allocation, the report prefers Muyuan-A/H, believing its valuation is below replacement cost and its mid-cycle earnings elasticity is stronger; Wens and New Hope Liuhe remain Neutral because improvements are already more fully reflected in valuation or their cost positions are relatively weaker.

Risks

• A later-than-expected or weaker-than-expected recovery in hog prices, causing cash losses to persist.
• Pork demand remains weak, fresh pork sales stay below seasonality, and pressure from clearing frozen meat inventories continues.
• Supply exits among smaller producers are slower than expected, causing oversupply to persist longer.
• Disease and biosecurity issues affect slaughter volume, costs, and unit profits.
• Rising leverage among high-cost producers, higher financing costs, and spreading risks of debt default or restructuring.
• Execution of policy-driven sow liquidation targets falls short of expectations.
• Muyuan underdelivers on cost reduction, management transition, and long-term free cash flow improvement.
• Wens' chicken prices and sales volume, as well as New Hope Liuhe's feed profits and overseas expansion, underperform expectations.

What to watch

• Whether spot hog prices in 2H26E recover toward around Rmb15/kg.
• The execution progress of the MOA's 37.5 million-head breeding sow target, and whether effective sow inventory continues to decline.
• Whether quarterly slaughter volume declines about 5%-6% YoY in 2Q26E, 3Q26E, and 4Q26E as Goldman Sachs forecasts.
• The ratio of fresh pork sales to slaughter volume and changes in frozen meat inventories, to gauge demand and inventory-clearing pressure.
• Piglet prices and commercial hog feed sales, which can signal future changes in commercial hog supply in advance.
• Changes in listed hog producers' cash runway, net debt, implied leverage, and financing costs.
• Whether stressed names such as Tianbang Food, Kingsino, Longda, and private producers see more restructuring, defaults, or exits.
• Changes in unit costs, slaughter volume, target prices, and ratings for Muyuan, Wens, and New Hope Liuhe.