Why were earnings forecasts cut?

  • After incorporating third-quarter 2026 results and its latest hog price assumptions, Morgan Stanley cut its revenue forecasts for each year from 2026 to 2028 by 3% and its earnings per share forecasts by 4%–5%.
  • The revisions reflect lower sales volume and hog price assumptions and increased marketing spending on new channels: the bank lowered its operating margin assumptions for the same period by 0.1–0.2 percentage points.
  • After the revisions, earnings per share forecasts for 2026, 2027 and 2028 are 1.41 yuan, 1.47 yuan and 1.54 yuan, respectively, compared with previous forecasts of 1.48 yuan, 1.53 yuan and 1.60 yuan.

What can channel expansion deliver, and what constraints does it face?

  • Morgan Stanley sees Shuanghui’s brand and nationwide distribution network as strengths, and expects entry into the foodservice channel to potentially open up new revenue streams; however, foodservice demand is lukewarm amid a weak macroeconomic environment.
  • The bank expects chilled and frozen pork sales volume to rise from 1.585 million tonnes in 2025 to 1.839 million tonnes in 2026, and then to 1.876 million tonnes in 2027. Its base case relies on sales outlet expansion driving gains in fresh pork market share, as well as an upgrade in the packaged meat product mix.
  • The effectiveness of expansion will affect profits: if outlet expansion falls short of expectations, fresh pork sales volume growth could slow; poor execution of newly launched chilled meat products could also dilute margins. Local protectionism and hog price volatility could affect market share gains and cost management, respectively.

What is the valuation assessment after the cut?

  • Morgan Stanley lowered its price target from 20.30 yuan to 19.40 yuan and maintained its Underweight rating; the new target is approximately 19% below the closing price of 23.94 yuan on 27 October 2026. The target is based on a discounted cash flow model using a weighted average cost of capital of 11% and a perpetual growth rate of 2%.
  • The bank forecasts a compound annual earnings growth rate of approximately 3% for the company from 2025 to 2027 and a long-term growth rate of approximately 2%, and considers the current price-to-earnings ratio high relative to that growth outlook.
  • In the bull case, a faster recovery in fresh pork and improved meat product margins from lower raw material costs correspond to a valuation of 32.30 yuan; in the bear case, weaker results from outlet expansion and persistently high raw material costs correspond to a valuation of 14.30 yuan.