WH Group Earnings: Solid Margins for the Downstream Segment, While Upstream Losses Have Narrowed

Narrow-moat WH Group’s first-quarter 2024 results were mixed, with revenue below our estimate but operating profit in China and the US outpacing our expectations. A robust operating margin in the China packaged meat segment drove operating profit growth, as well as a reduced loss in hog production in the US. We lifted our operating margin forecast for 2024 to 7.1% from 6.7% to incorporate the stronger first-quarter numbers, and our 2024 net profit estimate has increased by 4.3%. Nonetheless, our 2025-26 earnings forecasts are essentially unchanged. We retain our fair value estimate at HKD 6.90 per share, which implies 2024 price/earnings of 11 times and enterprise value/EBITDA of 5 times. We think the shares are attractive, with a close to 6% dividend yield for 2024.