UBS maintains Buy rating on Muyuan Foods; H126 expected loss in line with expectations

Overview

This report is UBS's earnings review of Muyuan Foods' H126 preliminary results. The company expects an H126 attributable net loss of Rmb5.7bn–6.7bn, a sharp decline from the Rmb10.5bn profit in H125, while Q226 is expected to record a loss of Rmb4.5bn–5.5bn. UBS believes the results are broadly in line with expectations, with earnings pressure mainly stemming from a significant drop in hog prices, while cost declines and operational efficiency improvements continue.

Core views

UBS's core view is that short-term earnings are constrained by weak hog prices, but as China's largest hog producer and the industry's low-cost leader, Muyuan stands to be a major beneficiary of the upcycle if industry fundamentals improve in H226 and drive a recovery in hog prices. The report maintains a Buy rating and a target price of HK$58.60.

Analysis framework

The report evaluates the investment view from the perspectives of the earnings preannouncement versus expectations, sales volume, hog prices, unit production cost, breeding sow inventory, valuation, and risk factors. Valuation uses a DCF model, combined with the 12-month target price, current price, forecast dividend yield, and forecast stock return to assess investment attractiveness.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  UBS derives Muyuan Foods' target price of HK$58.60 based on a DCF model.

• earnings_reviewpreliminary_results_review

  Comparing preliminary results with expectations

  Whether results are in line with expectations is assessed through H126 and Q226 preliminary loss ranges, year-on-year profit changes, and changes in hog prices and costs.

• quantitative_reviewQuantitative Research Review

  Quantitative Q&A on short-term factors

  The report discloses UBS's quantitative research Q&A module, but most short-term questions this time are N/A or have no catalyst.

Asset mapping & comparison

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

• 2714.HK

  Covered stock, Hong Kong-listed Muyuan Foods

  Strengths

  One of China's largest hog producers, with an industry chain spanning feed processing, hog farming, sow breeding, fattening, and slaughtering; UBS believes it has advantages in low cost, a strong balance sheet, and operating efficiency.

  Weaknesses

  Short-term earnings are highly affected by hog prices, with a substantial loss expected in H126; development of the downstream slaughtering business still needs to be observed.

  Comparison

  UBS positions it as the industry's low-cost leader; if the hog price cycle turns upward, it should have greater earnings recovery elasticity than higher-cost peers.

  Risks

  Rising feed costs, slower-than-expected capacity reduction causing prolonged weak hog prices, sales growth below expectations, and slower-than-expected development of the slaughtering business.

• 002714.SS

  A-share ticker mapping for the same company

  Strengths

  Represents the same operating entity as 2714.HK and benefits from the same hog cycle, cost, and scale factors.

  Weaknesses

  The report's valuation and rating focus primarily on 2714.HK, and the A-share price and valuation are not separately discussed in the main text.

  Comparison

  Can be observed as a related asset of the same company listed in a different market, but this report's target price and return calculations mainly focus on Hong Kong-listed 2714.HK.

  Risks

  In addition to company operating risks, valuation differences and liquidity differences between the A/H markets also need attention.

Key data

• H126 attributable net profit guidanceLoss of Rmb5.7bn–6.7bnH125 recorded a profit of Rmb10.5bn.
• Implied Q226 attributable net profitLoss of Rmb4.5bn–5.5bnQ225 recorded a profit of Rmb6.0bn.
• Q225 commercial hog sales volume20.3mn headUp 1.3% year on year.
• Q226 hog priceRmb9.7/kgDown 33% year on year.
• Estimated Q226 production costRmb11.6–11.7/kgBelow Rmb11.9/kg in Q126.
• Breeding sows at end-Q2263.1mn headDown 9.3% year on year and 0.5% quarter on quarter.
• 2024 hog sales volume71.6mn headThe company is China's largest hog producer.
• 12-month target priceHK$58.60Based on the DCF model.
• Current priceHK$32.40As of 2026-07-10.
• Forecast total stock return82.3%Including 80.9% forecast price upside and 1.4% forecast dividend yield.

Impact & implications

The report implies that near-term earnings remain under clear bottoming pressure, but if hog prices stabilize and rebound in H226, Muyuan's low-cost advantage, scale advantage, and operating efficiency could amplify earnings elasticity. For investors, the key judgment is not the H126 loss itself, but whether the hog price cycle is turning, whether cost improvements can continue, and whether the company can deliver earnings recovery during the industry upturn.

Risks

• Rising feed raw material costs may limit further declines in production costs.
• Slower-than-expected hog capacity reduction may lead to persistently weak hog prices and depress the company's profitability.
• Hog sales volume growth may come in below expectations.
• Development of the downstream slaughtering business may be slower than expected.
• Hog price volatility may cause significant deviations in earnings and valuation assumptions.

What to watch

• Whether industry fundamentals improve in H226 and whether hog prices recover.
• Whether the company's unit production cost can continue to decline or remain at a low level.
• Changes in breeding sow inventory and their impact on subsequent supply.
• Whether growth in commercial hog sales volume meets expectations.
• Progress in expansion of the downstream slaughtering business.
• Whether subsequent earnings updates deviate from UBS and market EPS forecasts.