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WH Group Ltd Shs Unitary 144A/Reg S 00288

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Stock XHKG Rating as of
HKD 5.83 +0.03 (0.52%)
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Company Report

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

Jacky Tsang

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.

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Price vs Fair Value

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00288 is trading at a 16% discount.
Price
HKD 5.80
Fair Value
HKD 2.30
Uncertainty
High
1-Star Price
HKD 19.40
5-Star Price
HKD 2.41
Economic Moat
Wbgbmy
Capital Allocation
Jdvccmwn

Bulls Say, Bears Say

Bulls

Scalable operations in both the US and China allow WH Group to take advantage of hog price differentials between the two countries and achieve raw material security for its packaged meat business, which is its main profit driver.

Bears

Rising geopolitical tensions between the US and China could turn against WH Group. Unexpected changes in tariffs of imported pork in China could also remove the cost advantage of US pork imports for Shuanghui.

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Trading Information

Previous Close Price
HKD 5.80
Day Range
HKD 5.80–5.89
52-Week Range
HKD 3.88–5.92
Bid/Ask
HKD 5.82 / HKD 5.83
Market Cap
HKD 74.80 Bil
Volume/Avg
26.7 Mil / 26.1 Mil

Key Statistics

Price/Earnings (Normalized)
18.68
Price/Sales
0.36
Dividend Yield (Trailing)
5.15%
Dividend Yield (Forward)
5.15%
Total Yield
5.17%

Company Profile

WH Group is a holding company and the world’s largest vertically integrated producer of pork and related packaged meat products. Its revenue is mainly derived from activities undertaken by its China and US operations, which are respectively via 70.3%-owned Henan Shuanghui Investment & Development Co., or Shuanghui, and wholly owned Smithfield Foods Inc. In the US, its key packaged meats brands, in which it has an 8% market share, include Nathan’s hot dogs, Armour, John Morrell, and Curly’s, while in China, products are mainly under the Shuanghui brand, where it also has a 32% market share. We expect the company’s operating profit to be split almost equally between the US and China going forward with a small contribution from Europe.
Sector
Consumer Defensive
Industry
Packaged Foods
Stock Style Box
Large Value
Total Number of Employees
101,000
Website
https://www.wh-group.com

Competitors

Valuation

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Metric
00288
CAG
HRL
Price/Earnings (Normalized)
 18.6811.6023.18
Price/Book Value
 0.971.622.46
Price/Sales
 0.361.231.60
Price/Cash Flow
 5.908.0516.27
Price/Earnings
00288
CAG
HRL

Financial Strength

Metric
00288
CAG
HRL
Quick Ratio
 0.650.290.77
Current Ratio
 1.640.951.49
Interest Coverage
 10.343.3514.54
Quick Ratio
00288
CAG
HRL

Profitability

Metric
00288
CAG
HRL
Return on Assets (Normalized)
 5.54%5.79%6.23%
Return on Equity (Normalized)
 11.52%14.39%10.82%
Return on Invested Capital (Normalized)
 8.31%8.83%7.92%
Return on Assets
00288
CAG
HRL
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