Muyuan didn't hit the correct cycle, but it hit itself.

Ask AI · How can PSY improvement extend the downside phase of the hog cycle?

On March 28, the “pork mao” Mu Yuan Co., Ltd., which is dually listed on both the A-share and Hong Kong stock markets, released its FY2025 annual report. Full-year revenue reached RMB 144.145 billion, up 4.49%; attributable net profit fell to RMB 15.487 billion, down 13.39% year over year; attributable net profit (after non-recurring items) was RMB 15.988 billion, down 14.71% year over year. EPS was RMB 2.88 per share, higher than the consensus estimate from institutions of RMB 2.46. (See the first chart of the financial report below; all subsequent figures are sourced from corporate financial reports, with units in RMB 100 million.)

Pork is the most plain—and most unavoidable—presence on Chinese people’s dining tables. Its price fluctuations steer the direction of CPI and also directly affect everyday life for ordinary people. In an industry so closely tied to people’s livelihoods, as the industry leader, Muyuan’s every expansion, contraction, profit and loss—what it truly reflects behind the scenes is the most real, and most gritty, operating logic of the Chinese economy.

When we try to understand the most real economic landscape today, with its distinctive “rural Jiangcun” flavor, Muyuan’s financial report offers an important window. It allows us to observe how China’s homegrown industries, amid an environment that is extremely fragmented and characterized by sharp volatility, attempt—through industrialization and scale—to stage a “rebellion against fate.”

Based on this, with the cycle as the core, let’s interpret Muyuan’s FY2025 “answer sheet.” The key viewpoints are:

· Technological innovation drives PSY growth; the feed-to-meat ratio declines. To a large extent, this affects the rhythm of the hog cycle, leaving the market currently facing a relatively long downside channel, which in turn impacts Muyuan’s short-term performance and expectations on the revenue side.

· The expansion of the slaughtering business, to some extent, eases pressure on Muyuan’s profit side. This enables Muyuan to maintain a minimum level of profitability while keeping output volumes, thereby growing market share.

· The effects of reducing leverage are quite clear. After the dual listing, Muyuan’s cash-flow pressure decreased, and the dividend yield increased notably beyond expectations.

· Capital expenditures have slowed down. Looking back at its pace, it does not fully align with the “hog cycle.” However, Muyuan’s current technology is relatively strong and still leaves some room for experimentation.

The specific logic is laid out below.

01

Different from previous hog cycles

Breaking it down by quarter: In Q4 2025, Muyuan recorded revenue of RMB 32.4 billion, a sharp year-on-year decline of 21.4%. Revenue fell for two consecutive quarters in the second half of 2025; the bonus from capacity expansion was unable to withstand the pressure of the cyclical downturn.

The reasons for the continued revenue decline are also very clear. The pace of capacity reduction in this round of the “hog cycle” that started in 2020 was slow, causing the cycle bottom to last far longer than expected. Since national live hog prices began falling in 2021, aside from a small rebound at the end of 2022, prices have remained in a downtrend channel since 2023.

Under normal cycle rotation (six full cycles since 2006), the average duration of the downward channel was 22.8 months. But calculated from the 22 December high point to the present, the long downward channel has already lasted 40 months. Calculated from April 2024 (relative high point), the short downward channel has also lasted 24 months—both exceeding average expectations.

What is different from previous cycles is that, in this round, beyond the most basic supply-demand relationship, technological innovation has become the core turning point.

After years of reforms toward large-scale production, together with upgrades in breeding and feed technologies, some deep changes affecting the rhythm of the cycle have occurred on the supply side. The most typical is the significant rise in PSY (the number of weaned piglets provided per breeding sow per year): from 16 in 2018 to the current range of 26–28.

Mysteel, in its agricultural product commentary, also emphasizes that as breeding technology advances, the domestic hog market has陷入 a dilemma of “more volume but lower prices, losses across the entire industry.”

If we look at available phased data at this stage, we can roughly sort out two clear changes in the “hog cycle”:

· Benefiting from the PSY improvement, the turning point in the cycle for the inventory of mature sows—410 million head—has dipped. Since the end of Q3 2023, the national inventory of mature sows has already fallen below 41 million head. But the cycle has not shown an obvious inflection point. According to Mysteel’s research, by the end of 2025, the national inventory of mature sows was 39.61 million head, still 1.6% above normal stock levels. The turning point in the next hog cycle may need to be observed through this round of the hog cycle.

· The hog cycle’s volatility has narrowed. Benefiting from the decline in the feed-to-meat ratio and the increase in PSY, the magnitude of changes in pork prices due to short-term supply-demand shifts will not be too large. Assuming there are no “black swan” events (such as epidemics), the magnitude of future cycle fluctuations can be referenced to the upward-rotation volatility range of 2024–2025—meat prices fluctuating between RMB 12.5 and RMB 25 per kilogram.

Based on this kind of extrapolation, we believe that in the first half of 2026, pork prices will still be in a price-finding/bottoming period. For Muyuan Co., Ltd., this suggests that it may need to wait until at least the end of 2026 for improvements on the revenue side.

02

Slaughtering becomes the “stabilizer”

In stark contrast to revenue is Muyuan’s record-high slaughter volume for 2025, reaching nearly 78 million head. Over the past year, Muyuan’s capacity expansion pace has been quite aggressive, and for 2026 it provided guidance of 75 million–81 million head. To put that in perspective, last year the total national slaughter volume was only 720 million head, meaning Muyuan’s market share reached 11%. There is also a trend toward further expansion.

Meanwhile, if you look closely at Muyuan’s financial report, you’ll also find that for the full year 2025, the overall gross margin of its operations was still reasonably solid. Although the overall gross margin fell to 14.7% in Q4, compared with the cycle low point of 2021, Muyuan’s preparations for this round of the hog cycle were still quite thorough.

The logic is actually simple. Management emphasized in the earnings call that the slaughter business achieved annual profitability for the first time in 2025. In the first half of 2025, the slaughter business recorded a gross margin of 2.1%; in the second half it increased to 3.1%.

As a downstream industry of hog farming, enterprises actually have room to adjust the profit margins of the slaughtering business. For example, in Muyuan’s case, the offset between its hog farming operations and its slaughtered meat business generated offset revenue of RMB 45.8 billion. Essentially, almost all cost items of the slaughter business are “covered” by revenue from the hog business.

If you want to actively adjust the slaughter business’s gross margin, you can sacrifice a bit of the hog business’s profit margin within a fair range, and then you can do it. So we do not need to be overly concerned about the slaughter business’s gross margin itself; instead, we should care about why the slaughter business matters for Muyuan and even for the entire hog farming industry.

For Muyuan, as a “second curve,” the slaughter business can help the company adjust the cycle in two aspects:

First, at relatively low points in the cycle, it can help maintain the gross margin level. If downstream demand were unstable, most farming enterprises, when prices fall, would typically choose to “hold hogs”（keep hogs that should have been sold alive and continue raising them） and “secondary fattening” (buying standard hogs and fattening them again). If the cycle reversal does not happen as expected, inventory pressure and longer production cycles will significantly affect the farming enterprises’ profit margins.

Second, it can take over potential mistakes in the expansion schedule. For companies in strong cycles, the logic of reducing production when conditions are favorable and expanding when conditions turn favorable is already well known and needs no elaboration. But if an expansion during a headwind cycle misses the rhythm, the blow to the enterprise can be more fatal than the cycle itself. By extending downstream, enterprises can better absorb part of the pressure after expansion—e.g., although Muyuan’s expansion pace in this instance, strictly speaking, is not fully aligned with the cycle, maintaining stable output today still relies on the relatively strong performance of the slaughtering business.

Vertical integration has never been just about acquiring farmers on the supply side, scaling up, and placing operations in fixed locations. The natural extension of business downstream absolutely helps leading companies expand their market-share advantage. Muyuan’s understanding of this is clear enough.

03

For now, reducing leverage is on a pause

On the cash-flow side: as of the end of 2025, Muyuan’s cash and short-term investments totaled RMB 13.9 billion. Both sequential and year-on-year figures declined, mainly because of maintaining a one-year deleveraging effort.

On the asset/liability side, as of the most recent reporting period, Muyuan’s debt-to-asset ratio was 54.2%. Compared with the beginning of 2024, it decreased by about 10 percentage points (10pct). Compared with the beginning of 2025, it decreased by 4.53 percentage points; total debt declined by RMB 17.1 billion versus the beginning of the year.

After a year of deleveraging efforts, Muyuan’s overall debt-to-asset ratio is already below the industry average of 57% and below the industry median of 55%. It can be expected that in the new year, there will be no more obvious deleveraging moves.

For Muyuan’s investors, they can look forward to a relatively higher dividend yield. In the earnings call, management also clearly stated that Muyuan has passed the stage of large-scale construction investment and has started to enter the period of cash-flow harvest.

According to periodic reports, Muyuan plans to pay cash dividends to all shareholders of RMB 4.27 per 10 shares, with a total dividend payout of RMB 2.435 billion. Combined with the semi-annual cash dividend of RMB 5.002 billion, Muyuan’s total 2025 cash dividend amounts to RMB 7.438 billion, accounting for 48.03% of this year’s attributable net profit. Nearly half of the profits were distributed to investors. This can also be seen as a kind of return to long-term, steadfast holders of Muyuan during a down cycle.

04

All expense items increase slightly; capital expenditures ebb

On expenses: In Q4 2025, Muyuan’s selling expenses, administrative expenses, and R&D expenses were RMB 350 million, RMB 1.18 billion, and RMB 390 million, respectively. In terms of expense-rate trends, selling expenses were maintained at 1.1% and R&D expenses at 1.2%, with a sequential increase of 20 basis points.

The growth in administrative expenses is relatively more noticeable: the expense rate rose to 3.7%, up 110 basis points sequentially, and up 210 basis points year over year. The main reason is increased management compensation.

On capital expenditures: as mentioned earlier, management in the earnings call proactively lowered its expectation for 2026 capital expenditures. In fact, since early 2025, Muyuan has already adjusted its capital expenditure pace. Full-year cumulative capital expenditures were RMB 9.53 billion, down 28.5% from 2024.

If you look back, it’s hard to say that Muyuan’s overall capital expenditure pace was excellent. In 2022–2023, capital expenditures were at a relatively high level; in 2024–2026 they gradually declined. However, they did not fully match the “hog cycle.” As mentioned earlier, the entire industry was not sufficiently prepared for changes in the “hog cycle” rhythm.

Based on the latest data: although the capital expenditure pace that was too early may have impacted profit margins, the goal of clearing capacity driven by expansion has already been achieved. As of the end of 2025, the share of slaughter volume accounted for by China’s designated slaughter enterprises reached 57.2%.

So while Muyuan’s capital expenditure schedule did not fully match the hog cycle, for Muyuan Co., Ltd., which is already positioned as a leading company, the issue is not that big. Whether it is expansion of downstream business or the decline in costs, capital expenditures will eventually see returns, sooner or later.

05

While pushing the cart, you also need to look up at the road

Looking back at Muyuan’s FY2025 performance, we can indeed see the process of Chinese enterprises continuously breaking through. Muyuan’s current core all-in cost of hog farming dropped rapidly from RMB 15.7 in 2022 to RMB 12 by the end of 2025. A series of measures—iterating breeding technologies to improve PSY, lowering the feed-to-meat ratio, building the second curve, etc.—has deepened Muyuan’s ability to withstand the cycle.

But returning to the opening question from the start of the article, the challenge facing Muyuan is actually a microcosm of China’s traditional industries: we are good at “working our tails off”—driving costs down to the extreme through technology iteration, management optimization, and scale expansion, competing in a way that no one can match. Yet when technology iteration—and even after optimizing the company’s own cost curve—leads to changes in the cycle of capital, we often react late. Muyuan is the most typical example of such a target.

There are many people who work hard, but few who can see the cycle clearly and manage it.

This is not a criticism of Muyuan. On the contrary, Muyuan has already worked very hard. It’s just that China’s transformation and upgrading of traditional industries requires not only “working hard,” but also “seeing more accurately.” If the company can get the cycle rhythm right, the market’s valuation could move up another step.

Outside the logic of hyper-competition in manufacturing, learning how to establish a sharp judgment of cycle rhythm, and how to anticipate changes in the supply-demand landscape early through technology iteration, may be a lesson that all leading companies in traditional industries must add.

The economic landscape of rural China has never lacked diligence and resilience. What is truly scarce is the ability to look up at the road while still pushing the cart.

This article is written based on publicly available information, solely for information exchange, and does not constitute any investment advice.