Cathay Pacific Haitong: Maintaining Modern Animal Husbandry (01117) “Increase” Rating Target Price HK$1.85

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report stating that it maintains the “gain” rating of Modern Animal Husbandry (01117). The bank expects the company's 2026-27 EPS to be 0.05 and 0.19 yuan/share, respectively. The company is a leader in the animal husbandry industry. Benefiting from the reversal of the meat and milk cycle, the company was given 1.3 times P/B in 2025, corresponding to a target price of HK$1.85 per share. The company continues to push ahead with the acquisition of Shengmu, and the scale effect is expected to be further enhanced after the integration. Currently, the cycle is bottoming out at an accelerated pace, and the implementation of the countervailing policy is expected to speed up the domestic production substitution process.

Cathay Pacific Haitong's main views are as follows:

The acquisition progress continues to advance, and strong joint strengths complement each other

The company continues to advance the acquisition of Shengmu. On October 30, it signed an irrevocable voting agency agreement with Mengniu and others, and plans to acquire 1.28% of China Shengmu shares for HK$37.52 million. After the share purchase agreement is completed, the total shareholding ratio of Hyundai Animal Husbandry and the actors involved will exceed 30%, triggering a mandatory comprehensive tender offer. The offer price is HK$0.35 per share, with a share price premium of nearly 15% compared to a 30% discount on the net assets per share on the last trading day. On December 24, the company announced a new round of progress. Currently, the State Administration of Market Supervision has accepted the antitrust application. The shareholders' meeting will be held on January 16, '26. After approval is approved, it is expected that the share purchase agreement will be held no later than June 30, '26.

Integrate upstream ranch resources to reduce costs and increase efficiency through synergy

25H1 China's Shengmu's revenue was -3.1% YoY to 1,444 billion yuan, with sales volume +6.3% YoY to 373,000 tons, average sales price -8.9% YoY to 3.87 yuan/kg; dairy cows kept -0.09,000 heads month-on-month to 143,600 heads. The acquisition will integrate upstream ranch resources under Mengniu, the majority shareholder, and further strengthen the scale effect. After the integration is completed, the company's cattle herd will exceed 610,000 heads, raw milk production will exceed 4 million tons, and the share of specialty milk production will increase from 8% to more than 20%; the company will collaborate and complement China's Shengmu in terms of resources, technology, market and management. The product and asset structure is expected to be optimized, and procurement costs are expected to drop further under the scale effect.

Putting down the cycle to speed up elimination, and implementing policies to speed up domestic substitution

The decline in dairy cows accelerated in November, mainly due to continued financial pressure and the reduction in reserve cow back-up lists, and the impact of subsequent back-up breaks is expected to be reflected month by month. Recently, the Ministry of Commerce announced a preliminary ruling on the countervailing investigation against imported dairy products originating in the European Union, imposing temporary countervailing duty guarantees on it from December 23, ruling that the ad valorem subsidy rate was 21.9-42.7%; the product range includes cheese, whipped cream, etc., and the number of subsidized imported products in 23 years was 129,500 tons (market share was 17.5%), and the import volume reached 93,000 tons from January to November '25. With the implementation of the countervailing policy, domestic substitution of dairy products in China is expected to accelerate, and demand for raw milk will be further boosted.

Risk warning: Inventory removal, price reversal falling short of expectations, fluctuating feed costs, food safety issues.