Summary of China Consumer Sector Conference Call Industry Overview - **Industry**: China Consumer Staples Food Sector - **Quarter Reviewed**: Q325 - **Outlook**: Q425 Key Points Q325 Results - Among 16 companies under UBS coverage, 11 reported Q325 results: - **Beats**: Anjoy Food, WH Group, Yankershop - **Misses**: Haitian-A/H, Jonjee, Juewei, Chacha, Three Squirrels - **In-line**: Fuling Zhacai, Shuanghui [2][10] Demand Trends 1. **Sluggish Restaurant Demand**: - Restaurant sales increased by only 1.3% YoY in Q325, down from 5.1% in Q225 and 4.7% in Q125 - Condiments and frozen food companies are facing sluggish demand, particularly in B2B channels, which were previously growth drivers - Elevated selling expense ratios noted due to sluggish topline growth and intensified competition, although gross profit margins remain steady due to favorable raw material prices [3][4] 2. **Niche Growth Opportunities**: - Certain categories, such as snacks, are experiencing rapid growth despite overall consumption trends - Konjac snacks, led by Weilong and Yankershop, are highlighted as a booming niche category - Product innovation and channel reshuffle are expected to drive high growth opportunities in the snacks sector [4][6] 3. **Global vs. Domestic Exposure**: - Companies with international operations are better positioned than those focused solely on the domestic market - WH Group has significant overseas exposure, with 43% of its operating profit from China, 46% from the US, and 11% from Europe in Q325, providing a diversified business portfolio [5][6] Q425 Expectations - A conservative outlook is maintained for the staples food sector in Q425, with no significant improvement in consumption trends anticipated - The calendar shift of Chinese New Year (February 2026 vs. January 2025) may negatively impact distributor inventory stock-up in Q425 - Preference for sectors/companies less affected by macro trends, such as niche snack companies and those with substantial overseas exposure [6][7] Stock Recommendations - **Top Picks**: - Weilong (BUY, PT HK$16.50) - Yankershop (BUY, PT Rmb90.00) - WH Group (BUY, HK$8.50) - Focus on companies with rapid growth potential supported by favorable product cycles and channel expansion, or those with steady earnings and attractive shareholder returns [7][9] Risks - Key risks for the sector include: - Demand recovery variability - Cost inflation or deflation - Competitive landscape changes - Price volatility of agricultural commodities and livestock - Food safety and industry regulations [11][12][14] Valuation Insights - Valuation methodologies include DCF for Yankershop and Weilong, and SOTP for WH Group - Downside risks for these companies include shrinking demand, economic slowdown, and increasing competition [12][13][14] Conclusion - The China consumer staples food sector is currently facing challenges with sluggish demand and competition, but there are pockets of growth in niche categories. Companies with global exposure and innovative product offerings are positioned to perform better in the upcoming quarters.

Summary of WH Group (0288.HK) Conference Call Company Overview - **Company**: WH Group (0288.HK) - **Industry**: Consumer Staples, specifically in the packaged meat sector Key Points and Arguments 1. **Special Dividend Announcement**: WH Group proposed a special dividend after selling 22.46 million shares in Smithfield Foods (SFD) for US$23.25 per share, generating proceeds of US$522 million, which is 3.73% of WH Group's market cap as of September 10 [1] 2. **Shareholder Returns**: WH Group is highlighted as a key player in the consumer staples sector with a recurring dividend yield exceeding 6%. The company is expected to have net cash by 2026, improving its capacity for shareholder returns [2] 3. **Earnings Growth**: The company anticipates a 7% year-over-year growth in operating profit for 2025, supported by a recovery in cyclical earnings and a more optimized business structure [2] 4. **Dividend Payments**: In 2023, WH Group paid a cash dividend of HK$0.5 per share and a special dividend of HK$0.18, totaling US$325 million, which reflects its commitment to returning value to shareholders [2] 5. **Valuation and Price Target**: WH Group's share price has increased by 42% year-to-date, yet it remains attractive with a valuation of 9x 2025E PE and a recurring dividend yield of over 6% [3] 6. **Market Position**: WH Group is trading at a 14% discount to the combined market cap of its stakes in Shuanghui and SFD, indicating potential upside [3] 7. **Price Target**: The 12-month price target for WH Group is set at HK$9.40, representing a potential upside of 10.2% from the current price of HK$8.53 [13] 8. **Risks**: Key downside risks include: - **US Business**: Economic slowdown affecting consumer spending, shifts in consumption trends, and margin pressures from increased costs and regulations [10] - **China Business**: Volatility in live hog prices and inflation risks in commodities like corn and soybean [11] - **Food Safety Issues**: Any food safety incidents could significantly impact consumer trust and financial performance [11] Additional Important Information - **Financial Metrics**: WH Group's dividend payout ratio is projected to increase from 51% in 2024 to 62% in 2025, with a dividend yield of 5.9% in 2024 and 6.4% in 2025 [7] - **Free Cash Flow (FCF)**: The FCF yield is expected to be 13.2% in 2024 and 13.3% in 2025, indicating strong cash generation capabilities [7] - **Analyst Ratings**: Goldman Sachs maintains a "Buy" rating on WH Group, reflecting confidence in its growth prospects and shareholder return strategy [3] This summary encapsulates the essential insights from the WH Group conference call, focusing on its financial performance, shareholder returns, market positioning, and associated risks.

Investment Rating - The report initiates a Buy rating for WH Group with a 12-month target price (TP) of HK$8.6 per share, and a Neutral rating for Shuanghui with a TP of Rmb25.2 per share [4][25]. Core Insights - WH Group is the largest pork player globally, with a vertically integrated business model spanning hog production to packaged meat, and a significant presence in China, the US, and Europe [1][15]. - The company offers compelling shareholder returns with a dividend yield of 6%, one of the highest in the consumer staples sector, and potential share price upside of 26% [2][20]. - WH Group's operating profit (OP) is expected to grow at 6% year-on-year in 2025, driven by 4% growth in China, 7% in the US, and 10% in Europe, supported by favorable feed costs and ongoing operational efficiencies [2][24]. Summary by Sections Company Overview - WH Group operates a vertically integrated business model from hog production to packaged meat, with significant market shares in China (32% of sales), the US (53% of sales), and Europe (15% of sales) [1][15]. Financial Performance - The report anticipates WH Group's OP growth of 6% year-on-year in 2025, with specific growth rates of 4% in China, 7% in the US, and 10% in Europe, primarily due to stable hog prices and resilient packaged meat demand [2][24]. - The company is expected to maintain a strong cash flow, supporting its dividend payout ratio, with a forecasted free cash flow conversion rate of approximately 80% in 2026-27 [20][71]. Valuation - WH Group is valued attractively at 4x EV/EBITDA and 7x PE, with a potential re-rating opportunity as the US business stabilizes [3][25]. - The report highlights a significant valuation gap, with WH Group's current trading value reflecting only 40%-50% of the proportionate Smithfield Foods (SFD) market cap [3][27]. Market Dynamics - The report identifies three key themes affecting WH Group: the pork cycle, competition dynamics, and operating efficiency, with a focus on the company's leading market share and comprehensive product portfolio [16][17]. - Shuanghui, as the largest processed packaged meat player in China, is expected to maintain defensiveness amid pork cycles, with a track record of passing through inflation during hog upcycles [5][12]. Growth Outlook - The report projects a small decline in packaged meat OP in China, offset by growth in fresh meat OP, with expectations of breakeven in hog and poultry production [24][23]. - The US business is anticipated to recover from losses in 2024 to profits in 2025, while Europe is expected to see a 10% growth driven by acquisitions and favorable market conditions [24][25].