We recommend that investors look beyond weaker 2H21 livestock prices and its core earnings to the rebound of prices in China, Vietnam and Thailand, once the COVID-19 pandemic situation eases and the meat consumption starts to recover in late-4Q21 or in 2022. We believe that China’s live pig price has already bottomed out in Jun 2021. Our TRADING BUY rating stands premised on the anticipated strong livestock recovery in 2022 and its cheap valuation—2021 PER of 10.4x against its mean of 12.8x.
China’s live pig price hits bottom pending a recovery in 2022
China’s live pig price retreated to CNY14.06/kg on Sep 1, down 19% from its recent high of CNY17.35/kg on Jun 28, 2021. The quarter-to-date average (Jul 1-Sep 1) was CNY15.44/kg. Assuming the average of CNY16/kg in 3Q21, it will represent a 57% YoY and 17% QoQ tumble (against its peak of CNY37/kg in 3Q20). Given CTI’s cost of pork production of CNY15-16/kg, it is likely to operate at break-even point in 3Q21. China’s other small-scale pork operators are now operating at a loss against their production costs at or above CNY20/kg.