WH Group Limited (0288.HK) is the largest producer of processed and fresh pork in the world. The company is producing and distributing packaged meat, fresh pork and hog products. Production facilities are based in China, the U.S. and in Europe.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] The once state-owned company from Henan Province in China, formerly known as Shuanghui International, was founded in 1958 and is today headquartered in Hong Kong. WH Group is listed on the Main Board of HKEX since August 2014. Shares can furthermore be traded in the US and Germany. The company is a subsidiary of Heroic Zone Investments Limited.
WH Group is a majority shareholder of Henan Shuanghui Investment & Development Co., China’s largest meat processing company, and is the owner of Smithfield Foods, a global food company bought in 2013 for 4.7bn USD. With both companies, WH Group is number one in the US, in some key markets in Europe, and in China, the largest pork consumer market in the world. The company is planning to buy further competitors such as the recently announced acquisition of Clougherty Packing, a major pork processor in California. This will further expand and strengthen the vertically integrated supply chain of WH Group and provide an immediate entry into the US West Coast market. Further acquisitions are very likely in 2017 as the company aims to become number one for other packaged meat products too.
With a staff of 103,000 employees, WH Group generated revenues of 10.5bn USD and a profit before tax of 913m USD during the first six months of this year, an increase of 2.4% and 65% respectively compared to the same period a year ago. More than 90% of the profit comes from packaged meat products. In 2015 revenues and profit were down 5% and 8% respectively, partly due to a shrinking appetite of Chinese consumers for pork and a consolidation in the industry, which led to higher prices for pork products. Regarding profitability, the company is lacking behind its industry peers, leaving space for improvements in the future. High debts resulting from the Smithfield acquisition are coming down to normal levels. Cash and equivalents are at 465m USD, down 59% since beginning of the year, with cash used mostly for financing products and repayment of loans.
After gaining more than 60% since September 2015, WH Group’s shares are consolidating since April and are struggling with the resistant line marking old high at 6.7 HKD. The shares are reasonably priced at 11 times earnings, well below industry average. Profitability improvements and further acquisitions in the near future could soon bring new momentum to the stock.
AIS Rating: ★★★★☆
| 2012 | 2013 | 2014 | 2015 | 2016 H1 only |
|
|---|---|---|---|---|---|
| EPS (USDcents) | 3.3 | -2.6 | 6.4 | 5.8 | 4.0 |
| Change | 152% | -180% | 346% | -11% | 82% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 11 | 39 | 1.9 | 7.2 | 44% | 18% | 128% | 2% |
* Equity / Total Assets, ** Total Liabilities / Equity
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