1. The disappointing 3Q14 result was due to: (1) production delay (for both technology innovation/upgrade for old capacity and new greenfield plants; this dragged down 3Q14 sales by 2-3%); (2) slowing end-demand (usually holiday sales for Mid-Autumn Festival and National Day is 20-30% higher than normal days, but this didn’t happen in Sept 2014, given the on-going anti-corruption campaign); and (3) Rmb96mn of government grants delayed from 3Q14 to 4Q14 due to timing of audit.
2. Management expects a stronger 4Q14 vs 3Q14, due to (1) certain old facility’s innovation work is to complete in 4Q14 and start to contribute production; and (2) 4Q normally is a stronger season vs 3Q. However, the overall softening consumption sentiment is unlikely to have a meaningful change in 4Q14-1H15.
3. Management is confident to deliver positive YoY growth in 2014 sales and earnings, but didn’t quantify the growth. For the next 10 years, management targets to add China downstream capacity of 200k tons/year and China upstream capacity of 3m heads/year, to ultimately reach the target of 4 mn ton and 60 mn head in 2025.
4. SFD is to report 3Q14 on 7 Nov, 9am EST. Management thinks the US operation is on the right track.
China 3Q14 below GSe, but not enough to break value story; Buy
What’s changed
WH Group’s China subsidiary Shuanghui (c.49% of group OP) reported 3Q
results below GS expectations after market on October 24th. 3Q14 sales
and OP fell 0.7%/11.9% YoY, respectively, driven largely by weak branded
pork product sales/margins. Upstream fresh pork saw a sequential
slowdown in slaughter volumes vs 1H14, but margins remained intact,
despite higher live hog prices. Shuanghui’s 3Q14 sales/OP of Rmb12.1bn
(US$1.96bn) and RMB1.2bn (US$196mn) made up 40%/42% of our 2H14E
forecasts vs 3Q13 sales/OP being 49%/52% of 2H13. As overall weakness in
China Staples consumption (including branded pork products) looks set to
stay in 2H14 and some new plants are experiencing delays, we cut our
China NPAT by 9%/12%/16% in 2014/15/16E, leading to a 5%/6.5%/9.3%
downward revision to group NPAT. We retain Buy as we continue to see
strong consolidation opportunities in China’s pork industry. Our revised
12-month TP of HK$8.00/sh (from HK$8.60/sh) implies 29% upside.
Implications
Fresh pork: sales grew 6% YoY, (volumes +7%; ASP -1% on lower yoy live
hog prices). Slaughter volume growth of 6.2% is a sequential slowdown
from 17%/22% in 2013/1H14 but China’s industry slaughter volumes also
saw a downturn since May 2014. We revise our FY14E volume growth
from 25% to 15%, implying 8% growth in 2H14. Branded pork products:
Sales fell by 6% YoY (-3.7% volume; -2.4% ASP). Mgmt cited new project
delays (until 1H15) and restructuring of the existing portfolio as reasons.
As such, we cut volume growth forecast in FY14/15E to 1%/5% vs previous
5%/10%, implying -1.3% volume growth in 2H14. We also revise profit/ton
from US$426 to US$401 reflecting lower ASP and higher marketing cost.
Valuation
2015E EV/EBITDA based SOTP (unchanged) 12-m TP implies 14.5x 2015E P/E.
Key risks
Worse than expected delays in product upgrades, pork price inflation.
DPZ Blog 
請問先生可否分享一下,何以認為油價可能長期低沉?會是$80樓下?
小弟之前"直覺"認為油價不會長期低沉,所以今天見中海油跌的多,排隊要買,只是最後還是沒做成.
WH Group (288 HK)
with Lijun Guo (CFO)
Key takeaways from Credit Suisse:
1. The disappointing 3Q14 result was due to: (1) production delay (for both technology innovation/upgrade for old capacity and new greenfield plants; this dragged down 3Q14 sales by 2-3%); (2) slowing end-demand (usually holiday sales for Mid-Autumn Festival and National Day is 20-30% higher than normal days, but this didn’t happen in Sept 2014, given the on-going anti-corruption campaign); and (3) Rmb96mn of government grants delayed from 3Q14 to 4Q14 due to timing of audit.
2. Management expects a stronger 4Q14 vs 3Q14, due to (1) certain old facility’s innovation work is to complete in 4Q14 and start to contribute production; and (2) 4Q normally is a stronger season vs 3Q. However, the overall softening consumption sentiment is unlikely to have a meaningful change in 4Q14-1H15.
3. Management is confident to deliver positive YoY growth in 2014 sales and earnings, but didn’t quantify the growth. For the next 10 years, management targets to add China downstream capacity of 200k tons/year and China upstream capacity of 3m heads/year, to ultimately reach the target of 4 mn ton and 60 mn head in 2025.
4. SFD is to report 3Q14 on 7 Nov, 9am EST. Management thinks the US operation is on the right track.
Goldman view on WH Group
China 3Q14 below GSe, but not enough to break value story; Buy
What’s changed
WH Group’s China subsidiary Shuanghui (c.49% of group OP) reported 3Q
results below GS expectations after market on October 24th. 3Q14 sales
and OP fell 0.7%/11.9% YoY, respectively, driven largely by weak branded
pork product sales/margins. Upstream fresh pork saw a sequential
slowdown in slaughter volumes vs 1H14, but margins remained intact,
despite higher live hog prices. Shuanghui’s 3Q14 sales/OP of Rmb12.1bn
(US$1.96bn) and RMB1.2bn (US$196mn) made up 40%/42% of our 2H14E
forecasts vs 3Q13 sales/OP being 49%/52% of 2H13. As overall weakness in
China Staples consumption (including branded pork products) looks set to
stay in 2H14 and some new plants are experiencing delays, we cut our
China NPAT by 9%/12%/16% in 2014/15/16E, leading to a 5%/6.5%/9.3%
downward revision to group NPAT. We retain Buy as we continue to see
strong consolidation opportunities in China’s pork industry. Our revised
12-month TP of HK$8.00/sh (from HK$8.60/sh) implies 29% upside.
Implications
Fresh pork: sales grew 6% YoY, (volumes +7%; ASP -1% on lower yoy live
hog prices). Slaughter volume growth of 6.2% is a sequential slowdown
from 17%/22% in 2013/1H14 but China’s industry slaughter volumes also
saw a downturn since May 2014. We revise our FY14E volume growth
from 25% to 15%, implying 8% growth in 2H14. Branded pork products:
Sales fell by 6% YoY (-3.7% volume; -2.4% ASP). Mgmt cited new project
delays (until 1H15) and restructuring of the existing portfolio as reasons.
As such, we cut volume growth forecast in FY14/15E to 1%/5% vs previous
5%/10%, implying -1.3% volume growth in 2H14. We also revise profit/ton
from US$426 to US$401 reflecting lower ASP and higher marketing cost.
Valuation
2015E EV/EBITDA based SOTP (unchanged) 12-m TP implies 14.5x 2015E P/E.
Key risks
Worse than expected delays in product upgrades, pork price inflation.