Meat production sector – Swine prices likely peak in 3Q22

• Average swine prices have accelerated since mid-Jun and is 45.4% higher than end-FY21, mainly driven by the rising Chinese hog prices.
• We expect swine prices to peak at VND80,000 in 3Q22F but then cool down in 4Q22F thanks to stable supply.
• We believe the current market prices of listed meat producers (DBC, BAF, and HAG) have already priced in the swine price upturn.

Swine prices accelerate since mid-Jun
As at 27 Jul, domestic swine prices jumped 19.9% mom and 38.6% ytd. The Northern region witnessed the strongest increase of 18.3% mom. We believe the recent price hike was due to 1) supply cuts in some provinces due to the ASF (African swine fever) outbreaks in 1Q22, 2) cost push from rising animal feed price, and 3) impact from the swine price increase in China. The domestic swine prices averaged at VND55,800 in 7M22 (-22.0% yoy).
We expect swine prices to peak at VND80,000/kg then cool down
The government pays attention to the recent swine price movement amid inflation pressure. The swine prices contribute about 4% of Vietnam’s CPI. To contain inflation well below 4% this year, the government might impose some administrative measures in case swine prices accelerate further, in our view. Besides we do not see any constraint in swine supply in 2H22, thus, the recent price hike might last only in short term. We expect swine prices to peak at VND80,000/kg then cool down in 4Q22F, averaging at VND65,500/kg (+31.8% yoy) in 2H22F and VND60,000/kg (-2.9% yoy) for 2022.
The swine price upturn has been fully priced in
Currently, meat producers’ stocks are traded at 11.5-20.7 TTM PE, which is even higher than the valuation of DBC during the swine price uptrend in Jun 19 – Dec 19. Investors should be cautious about meat producer stocks as we believe the bright outlook has largely been priced in.
Upside catalysts include 1) lower-than-expected global grain price, 2) higher-than-expected live hog price and meat consumption demand. Downside risks include 1) higher-than-expected input material price for animal feed and 2) lower-than-expected live hog price

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