Muyuan Earnings: Soft Hog Prices Weighed on Results, but Earnings Outlook Set to Improve

No-moat Muyuan Foods’ 2023 and first-quarter 2024 results were dragged by subdued hog prices. Net loss in 2023 was worse than our estimate, with operating loss persisting entering 2024. Management guided that the higher production cost during the first quarter was temporary due to disease control expense, but expects the cost to be lower in second half 2024. The company also expects improving hog prices in the second half, consistent with our view. We cut the 2024 earnings projection by 11% on lower hog production volume and hog price assumption, but our 2025-26 earnings forecasts are essentially unchanged as we retain hog production segment assumptions. Hence, we maintain our fair value estimate at CNY 46 per share, which implies 25 times 2024 P/E and 11 times enterprise value/EBITDA. The company’s share prices have gained decent momentum over the past six months, likely due to expectations of improving earnings in the second half. We think this has been largely priced in and the stock is fairly valued currently.