Resilient Q1 Earnings Signals Turnaround in 2022 Profit; Shares Attractive; FVE up to HKD 8.40

WH Group reported resilient first-quarter earnings across China and the U.S. Despite a 1% decline in revenue, the company’s operating profit in the quarter rose 28% year on year whereas net profit increased by 13% year on year. Respectable bottom line growth was consistent with our view that WH Group should see notable rebound of profit this year as hog prices in China stabilize and are no longer a drag to upstream profits. Amidst the immense inflationary pressure faced by consumer staples companies in China, we think WH Group has lower cost pressure due to subdued hog prices in the country. Smithfield’s profitability also outperformed our expectations for the quarter, due to stronger-than-expected demand and operating leverage. As a result, we raised our 2022 net profit estimates to USD 1.50 billion, from USD 1.42 billion.