www.research.hsbc.comDisclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix, and with the Disclaimer, which forms part of it.Play interview withAlessia ApostolatosEquitiesGlobalSeptember 2019By: Alessia Apostolatos and Carlos LaboyGlobal FoodAfrican swine fever: A new realityAfrican swine fever (ASF) is a transformational event that will reset the trajectory and development of the global protein industryWe help reframe thinking on supply, demand, pricing and protein substitution; global beef could be set to have long-term shiftsIn this context, we think JBS (Buy) is the best positioned and offers the most solutions; we also rate Marfrig Buy and downgrade BRF to Hold S P O T L I G H T 1 Equities ● Global September 2019 Rarely does an event of such large a proportion and speed as ASF bring such global industry dislocations so as to transform an industry and recast its future winners. ASF is a deadly swine virus with long-ranging implications. There is no cure in sight, it is highly contagious and can live for years, and the biosecurity required to control and restock lost herds is a challenge. Recovering supply will take years, particularly in China, as a new swine farming infrastructure has to be built. Approximately one-third of China’s swine herd is already lost per official numbers. Pork is by far the top protein consumed in the world and there isn’t enough pork, beef and chicken in the global export market to make up the lost supply in China. Substitution is going to change the trajectory of growth for pork substitutes like chicken and we see the best opportunities for beef exporters. New industry winners will emerge and investors will have to reconsider how to invest in an industry landscape that is going to transform over the medium term. The data revealing unprecedented shifts in supply, demand, pricing and substitution is only now starting to surface. This report goes into great detail to help investors prepare for how to think about the fast-changing data that is garnering momentum in the months ahead and to reframe medium- and long-term investment implications for the industry. We see the best opportunity in Buy-rated JBS, the second largest revenue generating food company in the world. JBS is in a unique position with new governance standards in place and more catalysts ahead with a planned NYSE listing for early next year and a new domicile move to the US – its largest market. JBS has by far the greatest scale, management depth, balance sheet capability, geographic diversity, and a leading global position in all the key proteins to win. We like Buy-rated beef processor Marfrig given its leading position among the top beef exporters globally, and we downgrade BRF to Hold as the benefits appear to be more priced in for this pou...
