Food – Entering a new earnings upcycle

Earnings bottomed in 2Q26; recovery to strengthen through 2027F. Sector core earnings fell 53% YoY in 2Q26, marking what we believe to be the trough of the current cycle. Livestock earnings are expected to turn to be flat to slightly down YoY in 3Q26F before returning to growth in 4Q26F as swine and broiler margins recover. Meanwhile, TU should continue to post positive YoY earnings growth throughout 2H26F on stronger sales and transformation-driven cost savings. After a 2026 drop, sector earnings are set to grow 14% YoY in 2027F, with both INVX and consensus expecting earnings upcycle.

Thai livestock prices have entered a new upcycle. Local swine prices have recovered from Bt61/kg in Jun-26 to Bt74/kg currently, with 3Q26TD averaging Bt68/kg (+7% QoQ, flat YoY). Local broiler prices have rebounded from Bt36/kg in Jun-26 to Bt45/kg currently, with 3Q26TD averaging Bt44/kg (+12% QoQ, +9% YoY). The recovery reflects tighter supply following breeder-stock control measures, ASF/PRRS outbreaks in swine and Newcastle disease disruptions in broilers, while local consumption has improved from 1H26. Given the livestock production cycle, we expect favorable pricing conditions to persist through 2H26F and potentially into 1H27F, supporting margin recovery.

Overseas swine markets remain supportive. Vietnam swine prices softened QoQ to around VND60,851/kg in 3Q26TD (-7% QoQ, +4% YoY) from VND65,660/kg in 2Q26, reflecting seasonally weaker demand. Nevertheless, prices remain well above the estimated breakeven level of ~VND46,000/kg, supporting healthy producer profitability. Meanwhile, China swine prices recovered to around CNY11/kg in 3Q26TD (+13% QoQ, -22% YoY) from CNY9-10/kg in 2Q26 as supply discipline improved following industry losses and breeding sow inventories declined. With Vietnam supported by a relatively balanced supply-demand environment and China benefiting from easing oversupply, we expect favorable market conditions in both countries to continue through 2H26F.

Feed costs remain manageable. Imported soybean meal prices edged up QoQ to Bt16.6/kg in 3Q26TD (+2% QoQ, +15% YoY), driven by higher freight costs and elevated oil prices. In contrast, domestic corn prices eased QoQ to around Bt11/kg in 3Q26TD (-5% QoQ, +9% YoY) as local supply improved with the start of the harvest season. Most integrated producers have already secured 4-6 months of soybean meal supply and maintain 2-3 months of corn inventories. While feed costs have increased, we expect the impact to remain manageable and more than offset by the ongoing recovery in swine and broiler prices through 2H26F and into 1H27F.

Aquatic earnings momentum remains intact despite higher tuna prices. Skipjack tuna prices have risen from US$1,700/ton in 1H26 to around US$2,100/ton in Aug-26, driven by the seasonal FAD fishing ban and tighter global tuna supply. Nevertheless, TU views the recent increase as largely temporary and expects tuna prices to gradually normalize later this year. The impact is further mitigated by TU's relatively high raw material inventory on hand and its ability to pass through higher raw material costs over time. Customer order patterns remain normal despite recent US tariff developments, while management believes the current 12.5% US tariff remains manageable as most competing seafood-exporting countries face similar tariff rates.

Valuation remains attractive; BTG and TU are our top picks. The sector currently trades at -1.5SD to -1.0SD below historical 10-year average PE despite improving earnings visibility. We believe recovering livestock margins and resilient aquatic earnings could support further rerating as the sector enters a new earnings upcycle. BTG is our preferred livestock play, offering the strong earnings leverage to improving swine and broiler market conditions, while TU remains our preferred quality-growth player, with resilient growth, transformation benefits and positive earnings sensitivity to a weaker Thai baht.

Key risks. Weak prices from fragile purchasing power and more supply, high feed costs and a strong THB. Key ESG risks are GHG emissions, waste & water management (E), customer welfare, product quality, health & safety policies (S).