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Asia's top stock is now a Chinese pig farmer after 85% surge

[HONG KONG] One of China's biggest pig breeders is now the best performing stock on the MSCI Asia Pacific Index this year, as African swine fever continues to disrupt the pork business.

Muyuan Foodstuff Co climbed by the 10 per cent daily limit for a second-straight day in Shenzhen, before paring the gain to 5.3 per cent and closing at a record high. It has rallied 85 per cent this year, compared with an 8.6 per cent gain by the MSCI gauge. The ascent is even more impressive over six months: Muyuan has soared 142 per cent, again the best performer on the index, which is down 1.3 per cent in that time.

The surge has been driven by expectations for higher pork prices as African swine fever, which isn't known to harm humans, reduces pig supply. China International Capital Corp analysts Sun Yang and Yuan Feiyang said Muyuan should continue benefiting from the outlook on prices, which they see at a cyclical bottom and potentially in line for a bounce in the second quarter.

Support is also coming from Beijing, including the government pledging to support share listing and fundraising by qualified agriculture firms, according to official guidelines.

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Muyuan's gains this week may have been helped by its plan for a pig slaughtering and food processing project in Zhengyang County, as that should limit the negative impact from government restrictions on transportation of live hogs.

"Muyuan's production capacity is concentrated in Henan province, where pig prices have been lower than the national average due to restrictions on pig transport," Mr Sun and Mr Yuan wrote in a note dated March 4. The extra two-million hog slaughtering capacity should help accelerate the company's sales and raise average selling prices, they said, raising their price target on the stock by 43 per cent to 60 yuan.

Expectations of higher prices have helped offset disappointing results from last year, when Muyuan's net profit slid 78 per cent, according to a March 1 filing. The company isn't alone in seeing strong share-price gains on the back of the African swine fever outbreak. The Shenzhen Composite's agriculture index has outperformed the benchmark's other subgauges with a 49 per cent jump in 2019.

CICC is also positive on Muyuan's longer-term prospects, saying the company's expansion into slaughtering will help it adapt to the likely trend of pork consumption in China shifting from predominantly fresh meat to chilled meat, which should also help prevent and control epidemics.

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