#聚光创作大赛#
Author / Boiled under the stars
Edit/Spinach's Starry Sky
Typesetting/Beef jerky under the stars
2023 has been a very sluggish year for the aquaculture industry.
In this year, pig breeding was basically in a state of loss throughout the year. The situation of the white feather broiler breeding industry is not optimistic, and major enterprises will also fall into the quagmire of losses after the second quarter of 2023. The recession in the breeding industry will naturally be linked to other related industries, at least it will bring some pressure to the operation of the animal health industry in 2023.
In this year of complex internal and external environments, some animal health manufacturers have bucked the trend and performed brilliantly. For example, Ripu Biotech (300119) will achieve an operating income of 2.249 billion yuan (+7.90% year-on-year) and a net profit of 453 million yuan (+30.64% year-on-year) in 2023. The stock price reflects the market's recognition of Ripu Biotech, which recorded a sharp increase of 10.81% on the first working day after the release of the annual report. Since the low of 11.55 yuan in early February, it has risen by about 50%.
Recent stock price trend of Rip Biotech Source: Internet, compiled by the author
In the context of this year's breeding industry cycle recovery and pet fever, the animal health industry may indeed usher in the dawn.
First, the domestic animal protection industry has accelerated its clearance
Animal health is the use of vaccines and drugs to prevent and treat animal diseases. We talked about animal vaccines not long ago, and veterinary drugs refer to drugs used to prevent, diagnose and treat diseases of livestock, poultry, pets and other economic animals. According to the different production processes, it can be divided into veterinary biological products and veterinary chemical drugs.
Classification of veterinary drug products Source: "2021 Veterinary Drug Industry Development Report", SDIC Securities Research Center
As a large country in the breeding industry, the animal health market in mainland China is naturally not small, and the growth rate is relatively high. In 2021, the sales volume of the whole market was 68.618 billion yuan, an increase of 10.50% compared with 2020. From 2017 to 2021, the CAGR was 9.74%. From the perspective of products, 2/3 of them are APIs and chemical preparations.
Under the frequent blowing of policy warm winds, animal vaccines have first become the main products of the animal health industry.
As we all know, the mainland has been facing a relatively serious phenomenon of antibiotic abuse. This is not only reflected in the diagnosis and treatment of people, in fact, the problem in the field of aquaculture is more prominent due to less supervision. In order to save trouble and cost, many farmers add a large number of antibiotics to the feed, which leads to serious antibiotic residues at the food end, which will eventually endanger human health.
In order to solve this problem, the Ministry of Agriculture and Rural Affairs has banned the addition of growth-promoting antibiotics to feed since 2019, which is the ban on resistance, which we also mentioned in "Avian Influenza Appears on the Antarctic Continent for the First Time! In 2020, growth-promoting antibiotics accounted for 28.7% of the antibiotics used in the breeding end, a year-on-year decrease of 19.7%. With fewer antibiotics in the feed, the demand for animal vaccines in the farming industry will naturally rise.
Another variable is the further tightening of the qualifications of veterinary drug manufacturers by regulatory authorities since 2020.
Since the Ministry of Agriculture and Rural Affairs raised the requirements for veterinary drug manufacturers, the mixed manufacturers began to accelerate the clearance. In 2021, the number of manufacturers of veterinary drugs for chemical preparations was 1,121, although this number sounds quite large, but in fact, it has decreased by 154 compared with 2016. At the same time, the number of biologics veterinary drug manufacturers has increased year after year, with 137 manufacturers in 2021 increasing by 53.9% compared with 2016.
Second, the vaccine is expected to be available in the second half of the year
In 2021, the market share of large veterinary drug manufacturers increased by 2.3%, while the proportion of medium-sized manufacturers increased by 5.4%, reaching 5.5% and 54.2% respectively. This is naturally a long-term positive factor for the industry. Large enterprises have strong R&D capabilities, and they can also make full use of production capacity to achieve a positive cycle in the industry. This is the case for international animal health companies, through years of mergers and acquisitions, giants such as Zoetis, Eli Lilly Animal Protection, and Merck Animal Health have emerged, with CR5 exceeding 50%.
For domestic animal health manufacturers, the main variable in performance comes from African swine fever.
Since African swine fever entered the mainland in 2018, it has had a profound impact on the domestic pig breeding industry, bringing huge losses to farmers, especially small and medium-sized pig farms and retail farmers. At present, there is no special drug for non-plague, and there are no vaccine products on the market in China, so the urgent demand for breeding is very strong.
Due to the large genome of African swine fever virus and the complex immune mechanism, it is still quite difficult to develop. Although many manufacturers have laid out R&D pipelines, only Pleco (603566), China Animal Husbandry (600195) and Biotechnology (600201) have made relatively rapid progress in the subunit vaccine route, and it is expected that market vaccines will be available for sale in the second half of 2024.
Because African swine fever is very harmful, the expectation that non-plague vaccines will be included in the national compulsory immunization program is relatively certain. According to the average price of 15 yuan per branch and the market penetration rate of 80%, the market space corresponding to non-plague vaccines is about 18.2 billion yuan.
Top-notch non-plague vaccine R&D enterprises and related information Source: company announcement, investor Q&A, SDIC Securities Research Center
Third, the aquaculture industry or into the recovery track
Of course, as the upstream of the aquaculture industry, the most direct influencing factor of the animal health industry is the cyclical fluctuation of the prosperity of the aquaculture industry. When the market is good, the number of breeding increases, and farmers are more willing to use seedlings to ensure animal health, and when the market is poor, not only the number of breeding shrinks, farmers will also be more stingy with drugs to save costs. Generally speaking, the animal health industry will lag behind, generally after the price of livestock rises to begin to rise, and the price peaks and falls back for a period of time.
For example, if we look at the price index of veterinary drug APIs last year, it is true that with the pace of the breeding industry cycle, some mainstream products such as florfenicol and doxycycline hydrochloride have even fallen by 30-50% during the year.
2022-2023 Veterinary Drug Raw Material Price Index (VPi) Source: China Veterinary Drug and Feed Trading Center, compiled by Pacific Securities
So at this point in time, where has the aquaculture industry cycle gone?
First of all, as mentioned at the beginning of the article, the 2023 pig and white chicken cycles are both sluggish, and both are in the stage of reducing production capacity. From January to February, the price of chicks and broilers reflects that the chicken cycle has shown a certain bottom support, and the inventory of fertile sows in November 2023 has been reduced by 8.9% compared with the high point in 2021, and according to the breeding cycle, pig prices will also usher in a reversal in the second half of 2024.
The price index of veterinary drug APIs has also stabilized, although the general trend of decline will continue from January to February 2024, the decline has been relatively moderate, with a cumulative decline of only 2.16% in two months.
In short, the prosperity of the breeding industry is expected to usher in a recovery this year, and the animal health industry, as a member of the post-cycle, is expected to benefit from this.
Fourth, pet medication is still a big drama for foreign investment
In addition to the breeding industry, the rapid development of the pet industry in recent years has also brought new increments to animal protection.
Affected by factors such as the deep aging of the population and the decline in the marriage and childbearing rate, raising a pet as a companion in life has become a "suitable choice for all ages". Under this intensifying pet fever, the market size of the pet industry in mainland China has increased from 51 billion yuan to 249 billion yuan from 2013 to 2022, with a CAGR of 21.9% over the years.
Friends who love pets know that their own master is really a golden body, and it is much more expensive to see a pet than to see a doctor yourself, which naturally leaves enough market space for veterinary drugs in the direction of pets. However, the mainland pet drug market is still in its infancy, and the industry white paper shows that the market size of this segment in 2021 is 13.1 billion yuan, only 5.3% of the overall market size, and the potential is huge.
2015-2021 domestic pet drug market size and growth rate Source: "2022 Pet Medical Industry White Paper", SDIC Securities Research Center
However, in this subdivided industry with many opportunities, it is still a big show for foreign investment. For example, the deworming drugs with the highest sales volume in the pet drug market, the top 10 dog brands are all foreign brands, and the top 10 cat brands are only two of Zhejiang Hisun Animal Protection. This is especially true for vaccines, and the market for commonly used vaccines such as cat triple is basically occupied by multinational manufacturers such as Zoetis and Boehringer.
It is not difficult to understand that consumers are not sensitive to the price of drugs for their pets, and pay more attention to efficacy and safety. Therefore, the price is higher than that of domestic production, but imported veterinary drugs with better popularity and effect have become the preferred choice.
However, the pace of domestic substitution is also accelerating, after all, the concept of pets has become a hot topic that A-shares continue to pay attention to. Many animal health companies are working on this product line, and in 2022 alone, 16 pet products have obtained new veterinary drug certificates. Taking the cat triple vaccine as an example, from August last year to January this year, 7 products passed the emergency evaluation of the Ministry of Agriculture and Rural Affairs in less than half a year. Ripbio's feline triple vaccine "Ruimeo Shu" was officially launched in January, becoming the first cat triple vaccine product in mainland China.
The first shot has been fired, and the pattern of Zoetis family dominance may be gone forever.
Comparison of antigen content of "Ruimeoshu" and other vaccines (unit: 10 XTCID50/ml) Source: Ruipu Biotech "Ruimeowshu" press conference, Huaan Securities Research Institute
As the cycle of the farming industry reverses, the animal health industry will naturally benefit. Under the opening of the incremental space under the pet raising fever, if the new products of related manufacturers are commercialized, it will not only have a substitution effect on foreign brands, but also effectively increase the gross profit margin level of enterprises, which is particularly important. After all, with the increase in the concentration of the breeding industry, the voice of large breeding enterprises in the industry is becoming more and more important, which may squeeze the profit margins of the animal health industry.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.