WH Group less likely hit by a Trump trade war with China, says chairman
The chairman of WH Group, the Chinese pork behemoth that owns American meat processing company Smithfield, said pork trade between the United States and China is less likely to suffer should a trade war break out under the administration of US President Donald Trump.
“There is a rigid demand for pork both in America and in China,”said Wan Long, chairman of the pork producer. “In the scenario of a trade war, the first to be targeted should be steel and machinery manufacturers.”
The company’s shares dived in January when it was named by Morgan Stanley as one of the few Chinese companies with the most US exposure, which triggered worries that it might be among potential victims of a possible trade war between the world’s two biggest economies. Trump floated the idea of a 45 per cent tariff on Chinese imports in his election campaign, while China is widely predicted to retaliate should that come true.
WH booked a better-than-expected 17 per cent jump in net profit last year, driven by its expanding US packaged meat business.
Widely dubbed China’s “No 1 butcher”, the company recorded a net profit of US$1 billion, up from US$866 million a year earlier, exceeding analyst consensus estimates of US$953.8 million, according to a Reuters poll. Revenue climbed 1.5 per cent to US$21.5 billion.
In 2013 the company made a name for itself globally with its US$4.7 billion acquisition of Smithfield, the largest pork producer in the US. In November last year WH agreed to buy California’s largest pork processor Clougherty Packing and its two affiliates for US$145 million.
WH shares closed up 0.3 per cent to HK$6.04 in Hong Kong trading on Wednesday. The shares have gained 23.4 per cent in the past 12 months. The company plans to pay an interim dividend of 21 HK cents per share, compared to 12.5 HK cents a year earlier.
In an interview with the South China Morning Post in November, company director Luis Chein revealed that WH was looking at a new round of sizeable acquisitions by the end of 2017 as it aimed to become the world’s largest packaged meat company.
The company’s American business is increasingly seen as a profit engine for the Henan-based consumer giant. It raked in US$7.1 billion from sales of packaged meat last year, more than twice that contributed by the Chinese operation. That represents a 0.5 per cent growth from a year earlier.
“We believe the rising income from WH’s US arm is mainly boosted by its recent acquisition of Clougherty,” CICC said in a note.
The ongoing consolidation of Smithfield will also help drive down the company’s operating costs
