CITIC Securities: The elimination of excessive production capacity is gradually deepening, and with low valuation, we continue to recommend the pig breeding sector.

research report states that the Ministry of Agriculture and Rural Affairs has revised and issued the comprehensive regulation and control plan for the production capacity of live pigs, lowering the target for the normal breeding stock of sows nationwide to 37.5 million head. The control plan has been detailed comprehensively, and determination to stabilize pig prices has been strengthened. Currently, live pig prices are fluctuating at a low level, and policy efforts combined with deep industry losses are expected to further support the digestion of production capacity. Looking at the industry's loss situation, since March, pig prices have repeatedly hit new lows, with average losses per head in the industry remaining above 300 yuan/head. In addition, piglets have also fallen into simultaneous losses, and industry cash flow pressure is gradually increasing, gradually opening the door to market-driven capacity digestion. With the combined effort of policy and market-driven capacity digestion, it is estimated that the capacity will gradually deepen by 2026. In terms of valuation levels, we estimate that the current average market value per head in the live pig sector is not high, with an average market value per head of around 2,000-3,000 yuan, relatively low compared to historical cycles. In the medium to long term, with the guidance of national policies, leading companies stabilizing production, strengthening pig price stability, industry capital expenditure remaining lower than depreciation, and the improvement of productivity, it is expected that the valuation paradigm of the live pig sector in the future will gradually shift from past growth logic to value dividend logic. We continue to recommend: 1) companies with leading cost advantages and strong expectations for dividend distribution; 2) companies with low valuations; 3) companies opening up a second curve in the cattle farming business.