Summary of WH Group and Shuanghui Earnings Call Industry Overview - **Industry**: China Consumer Staples, specifically focusing on pork production and packaged meat - **Companies**: WH Group and Shuanghui Key Highlights from the Earnings Call Financial Performance - WH Group's 3Q25 operating profit (OP) increased by 4% year-over-year (yoy), surpassing Goldman Sachs' estimate of 2% yoy growth, driven by improved performance in China and the US [1][2] - In China, packaged meat profits rose by 8% yoy, with unit profit reaching Rmb5,200 per ton, although fresh meat faced increased pressure [1][2] - The US operations showed better-than-expected results in hog production and packaged meat, with a projected operating profit of US$302 million for packaged meat in 4Q25 [2] Management Insights - **China Operations**: - Management observed a larger-than-expected drop in hog prices in 3Q25, anticipating continued declines into 4Q25 and FY26, which could stabilize packaged meat unit profits at Rmb4,700 in 2025 and 2026 [2] - Fresh meat is expected to face headwinds due to tariffs, while hog production profits are projected to improve in 2026 compared to a loss in 3Q25 [2] - **US Operations**: - Hog production strength is expected to offset near-term input cost pressures, with management projecting a positive outlook into FY26 [2] - For FY25, adjusted EBIT guidance for packaged meat is set at US$1,091 million, with overall adjusted EBIT expected to be US$1,305 million [2] - **European Operations**: - Hog prices in Europe are expected to decline further into 4Q25, with management remaining optimistic about cost savings and vertical integration benefits in hog and poultry production [2][14] Adjustments and Projections - Following the earnings results, WH Group's 2025E underlying net income (NI) was fine-tuned upwards by 2.2%, while 2026E/27E NI was revised down slightly [3][19] - The 12-month target price (TP) for WH Group was lowered to HK$8.9 from HK$9.0, reflecting a narrowing of net asset value (NAV) discounts from 35% to 28% [3][19] - Shuanghui's 2025-27E net profit projections were increased by 0.7-0.9% due to a better outlook for packaged meat unit profits, with a new TP of Rmb25 [3][20] Market Dynamics - Management noted significant sales volume growth in new channels, with expectations of 40% yoy growth in 4Q25 and FY25 [2][13] - The company plans to increase investments in marketing and new channels to drive sales volume expansion [2][13] - Fresh meat profit per head is expected to improve in 4Q25, with management focusing on stabilizing unit profits amid market competition [2][13] Risks and Considerations - Fresh meat profits are under pressure due to tariffs and market competition, which may impact overall profitability [2][13] - Rising raw material costs and cautious consumer spending in the US could pose challenges for packaged meat revenue growth [2][13] Conclusion WH Group and Shuanghui are navigating a complex market environment with varying performance across regions. The management's focus on cost control, marketing investments, and adapting to market dynamics will be crucial for sustaining growth and profitability in the coming quarters.

Market Overview - The three major A-share indices showed mixed results on the 15th, with the Shanghai Composite Index down by 0.26%, the Shenzhen Component Index up by 0.63%, and the ChiNext Index up by 1.52% [2] - The total trading volume in the Shanghai and Shenzhen markets was 23,031 billion yuan, a decrease of 2,452 billion yuan compared to the previous day [2] Sector Performance - Over 3,300 stocks in the market experienced declines [2] - The gaming, pork, film and television, automotive parts, and CRO concept stocks saw the largest gains [2] - Conversely, the precious metals, military equipment, and copper cable high-speed connection sectors faced the most significant declines [2] Notable Stocks - The automotive parts sector had multiple stocks surge, with companies like Shanzhi Gaoke, Zhejiang Sebao, and Wanxiang Qianchao hitting the daily limit [2] - The gaming sector experienced high volatility, with Xinghui Entertainment reaching the daily limit and Perfect World also closing strong [2] - Pork stocks saw afternoon gains, with Aonong Biological and Delisi hitting the daily limit, while Tiankang Biological, Lihua Shares, and Longda Meishi showed notable increases [2] Sector Movements - Semiconductor, battery, and computing power sectors exhibited fluctuations during the trading session [2] - On the downside, the precious metals sector saw multiple stocks adjust, with Xiaocheng Technology dropping over 5% at the close [2] - The military equipment sector also faced downward pressure, with China Satellite, Aerospace Hongtu, and LIGONG Navigation showing significant declines [2]

The EU received another gut punch when it comes to trade, this time from China, which introduced levies as high as 62.4% on European pork imports: Here's your Evening Briefing. https://t.co/JJbhCSAQhX ...

Market Overview - A-shares experienced a volatile trading day following a significant increase on August 25, with the Shanghai Composite Index closing down 0.39% at 3868.38 points, while the Shenzhen Component Index rose 0.26% [1] - The market saw strong performance in sectors such as poultry, pork, gaming, chemicals, and consumer electronics, while sectors like medical services and rare earth permanent magnets faced declines [1] Sector Performance - The pork concept stocks remained strong, with Aonong Bio (603363) hitting the daily limit [1] - The gaming sector was active, with 37 Interactive Entertainment (002555) also reaching the daily limit [1] - The chemical sector showed continued activity, with Baiao Chemical (603360), Yuntu Holdings (002539), and Haiyang Technology (603382) all hitting the daily limit [1] - Consumer electronics stocks were lively, with companies like GoerTek (002241) reaching the daily limit [1] - In contrast, the medical services sector led the declines, with Sunlight Nuohuo and Hite Bio (300683) among the biggest losers [1] - The rare earth permanent magnet sector also faced downward pressure, with AVIC TianDa and Baosteel (600010) leading the declines [1] Huawei Concept Stocks - Huawei concept stocks collectively rose, with the Huawei Kunpeng Index and Huawei Harmony Index both increasing over 2% [2] - Notable performers included Junyi Digital (301172) which achieved a 20% limit up, and Aerospace Hongtu which surged over 10% [2] - The Harmony Index saw stocks like Tuwei Information (002261) hitting the daily limit, along with other companies such as Runhe Software (300339) and Changshan Beiming (000158) following suit [2] Upcoming Developments - On August 25, during the Harmony Intelligent Travel autumn product launch, SAIC and Huawei announced the pre-sale of their first model under the "Shangjie" brand, the H5 [2] - Huawei is set to release a new AI SSD product on August 27, which may significantly impact the existing landscape of China's AI storage market [2]

Investment Rating - The report indicates a preference for Beverage, followed by Pet Foods, Beer, and Dairy, with specific stock ideas highlighted for Eastroc, Tingyi/CR beverage, and Tsingtao-H [9][10]. Core Insights - The industry is experiencing a bumpy recovery in demand, particularly in the spirits, beer, and dairy sectors, with recent policy changes impacting consumption sentiment [1][3]. - Emerging channel shifts, such as instant shopping and discounter channels, are gaining traction, although their overall contribution to the staples universe remains small [1][8]. - Profitability resilience is supported by cost deflation and agile investment strategies, with companies focusing on margin visibility amid muted demand trends [1][9]. Demand Recovery - The demand recovery in Q2 has been lackluster, with notable declines in spirits and dairy products, while beer performance varies across brands [2][11]. - Retail performance has been conservative, with spirits and dairy showing year-over-year declines, particularly in the upper mid-end segments [2][11]. - The beverage sector shows solid volume momentum, although mixed performance is noted across brands [2][11]. Policy Impact - Recent policy tightening on alcohol consumption has created headwinds for spirits and beer companies, particularly affecting high-end catering and on-trade consumption [3][6][34]. - The government has implemented regulations prohibiting the serving of alcoholic drinks during working meals, impacting consumption sentiment during peak seasons [3][6][34]. Emerging Trends - There is a notable shift towards discounter channels and instant shopping platforms, with companies customizing products to meet rising demand [8][10]. - The pet food and beverage categories are experiencing positive product cycles, contributing to growth despite overall market challenges [7][41]. Pricing and Cost Trends - Pricing pressures persist across various sectors, with dairy and beverages introducing more value-for-money products in response to declining raw milk prices [12][36]. - Cost benefits from declining commodity prices are expected to support margin resilience across multiple sectors, including beer and dairy [7][12]. Company Performance - Companies like Yili and Mengniu are facing weak demand trends in UHT liquid milk, while fresh milk and chilled yogurt categories are performing better [38]. - CR Beer and Chongqing Brewery are focusing on in-home consumption and premiumization strategies to counteract weak on-trade demand [35][40]. - The pet food sector remains strong, with companies like China Pet expecting significant year-over-year growth driven by new product launches [41].

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].