【英文】汇丰银行报告：中国生猪产业报告：猪瘟对猪肉供应链意味着什么Initiate coverage: What African swine fever means for China’s（87P）

Over the next 10 years, we expect most of them to exit the market and the proportion of hogfarming companies producing more than 50,000 hogs annually to increase to the point where  they produce more than 40% of the country’s hogs, up from around 10% today. In 10 years we  expect the top 10 listed hog companies to have a market share of 30%, up from the current  7.38%. As the same time, we think the number of feed companies will drop from more than  6,000 to around 2,000 as small producers are squeezed out. As a result, we expect the animal  healthcare industry to grow at a CAGR of 10-15% over the next three years. 

A leading feed company in China, producing feed for poultry (49% of feed sales volume), fish  (29%) and pigs (22%). Haid has industry-leading cost advantages and its market share  continues to expand. African swine fever has hit the company’s pig feed sales but simultaneously boosted demand  for its aquatic and poultry products. Sales of pig feed fell 6% y-o-y in the first half of the year.  We think this trend will continue in the second half of 2019 and 2020, before sales recover in  2021 as hog farmers replenish their stock. Sales of aquatic feed rose 16% and poultry feed 30%  y-o-y in 1H19. We forecast that aquatic feed sales will rise 16%, 18% and 17% in 2019e, 2020e  and 2021e, respectively, with poultry feed sales up 30%, 20%, and 13% in the same years. We think profitability will improve in line with the expected recovery by downstream companies and our expectations for accelerated growth in feed sales volume. We forecast 2019e, 2020e  and 2021e net profit attributable to the parent can grow 36%, 39%, and 16%, to RMB1.96bn,  RMB2.73bn, and RMB3.16bn, respectively. The stock price is around historical highs, but the valuation is still at the historical average. We  think the company has significant long-term competitive advantages. The company is facing an  industry trough in the short term but as downstream pig farmers replenish their stock and fish  prices rise, the growth of the feed sales and profits are expected to accelerate. Potential catalysts: A rise in the sow inventory, increases in aquatic product prices, and significant improvements in q-o-q or y-o-y earnings growth.

A leading animal vaccine company in China. Jinyu has become the market leader in the vaccine  for foot and mouth disease (FMD), which affects hogs and other livestock. We believe demand  for FMD vaccine will continue to increase as the hog industry consolidates and farm standards  improve – the big companies are willing to buy the best vaccine available. The company’s R&D and production standards should be further enhanced after its new  industrial park starts operations by the end of the year. We think this will make Jinyu the  country’s leader in terms of biosafety and help it move beyond the FMD market to become a  platform for a complete range of animal vaccines. African swine fever has hit vaccine sales hard – in the first half of 2019 sales revenue fell  32.85% y-o-y. We expect they will fall for the rest of the year before starting to recover in 2020. Jinyu has lost many of its smaller customers but we think the bigger clients will start expanding  their production volumes again next year, boosting vaccine sales. As an industry leader, the  company also stands to benefit should a vaccine for African swine fever be approved for  production in China. Given the short-term challenges, we forecast that net profit attributable to the parent company  will fall 48%, to RMB389m, in 2019e and then rise 53% and 39% to RMB597m and RMB827m in 2020e and 2021e, respectively. The stock is now trading at a two-year low. We expect rising replenishment rates by downstream breeding farmers to lead to a recovery. In addition, with the acceleration of the trend for largescale breeding, demand for the company’s products should grow over the long term, pushing up  earnings.