Top pork producer WH Group beats expectations to post 27pc first half profit gain

PUBLISHED : Sunday, 21 August, 2016, 9:37pm
UPDATED : Sunday, 21 August, 2016, 10:34pm

The world’s biggest pork producer WH Group logged a better-than-expected 26.98 per cent jump in net profit for the first half of the year, boosted by a product-mix upgrade and effective cost cutting.

China’s “No 1 butcher”, which also controls US meat processor Smithfield Foods, booked a net profit of US$466 million, up from US$367 million a year earlier, outstripping analysts consensus estimates of US$402 million.

Revenue increased 2.3 per cent to US$10.45 billion.

Shrugging off pressure from China’s soaring pork prices that have deterred consumers, WH Group, formerly known as Shuanghui International, was the latest in the industry to benefit from an upgrade in product mix on the back of shifting Chinese tastes to healthier and more flavourful options, as well as business growth inthe US market.

“Contribution of our operation in the US to the total turnover and operating profit of the group was 56.4 per cent and 48.1 per cent respectively [compared with 61.6 per cent and 44.9 per cent the year before],” the company said in a statement to the Hong Kong stock exchange.

Ahead of the results announcement, China Merchant Securities analyst Dong Guangyang told the Post: “We believe WH Group’s imported meat products from the US will serve as a significant boost to its sales for the second half, as consumers in major cities such as Beijing and Shanghai are in favour of them.”

We believe WH Group’s imported meat products from the US will serve as a significant boost to its sales for the second half
Dong Guangyang, China Merchant Securities

WH Group shares closed down 2.74 per cent on Friday to HK$6.04. The shares have risen 30.23 per cent in the past six months. It planned an interim dividend of 5 HK cents per share, compared to no dividend paid a year earlier.

Since the US$7.1 billion Smithfield Foods takeover in 2013, the pork producer has brought more premium US-style sausages, bacon and ham products to supermarkets in China, while it has also introduced low temperature meat, which is considered healthier and tastier.

Although bullish on WH Group’s strong momentum in its US operations, CICC analyst Yuan Feiyang warned that continuous sales promotions and rising chicken prices could add pressure to the pork producer’s profitability in the months ahead.

China, which consumes more pork than any other part of the world, saw pork prices hit a record high in June after imports reached a record 163,500 metric tonnes in May.

The company made headlines in 2014 when it raised up to US$6 billion in one of the Hong Kong’s biggest initial public offerings at the time, using the funds to pay back the hefty debt it issued to gain control of Smithfield Foods.

The acquisition of the US hog producer was one of the largest deals that saw a Chinese firm buys its US competitor.

Additional reporting by Xie Yu