13 August 2025 | 1:53AM HKT China Consumer Staples: Pork First Take: 2Q25 OP beat; better packaged meat outlook in China; US hog production guidance raised WH group and Shuanghui reported 2Q25 results and hosted a results briefing after market close on 12 Aug. WH group 2Q25 revenue increased by 12% yoy to US$6,834mn, 2% above GSe mainly on higher US hog production partially offset by weaker fresh pork sales in China. EBIT increased by 3% yoy to US$656m, 6% above GSe on lower SG&A expenses and better profita ...

Core Viewpoint - Smithfield Foods, Inc. has announced a quarterly dividend payment of $0.25 per share, reflecting the company's commitment to returning value to shareholders [1] Company Overview - Smithfield Foods, Inc. is a leading American food company specializing in packaged meats and fresh pork products, with a diverse brand portfolio and strong relationships with U.S. farmers and customers [2]

Investment Rating - The report maintains a "Buy" rating on WH Group with a 12-month price target of HK$8.6 per share, indicating an upside of 15.9% from the current price of HK$7.42 [7]. - A "Neutral" rating is assigned to Shuanghui with an unchanged 12-month price target of Rmb25.2 per share, reflecting a modest upside of 2.4% from the current price of Rmb24.62 [8][18]. Core Insights - WH Group is expected to see a cyclical recovery in its US hog production business, with full-year profit forecasts uplifted to US$67 million, significantly above the company's guidance range [9][14]. - The China operations of WH Group are projected to return to a growth trajectory, with operating profit expected to grow by 8% year-over-year in 2Q25, following a decline of 14% in 1Q25 [9][10]. - The report anticipates WH Group's recurring operating profit in 2Q25 to grow approximately 13% year-over-year, one of the highest among traditional food companies [9][15]. Summary by Sections WH Group Financials - WH Group's market capitalization is HK$95.2 billion (approximately US$12.1 billion) with a revenue forecast of US$25.9 billion for 2025 [7]. - The company is expected to achieve an EBITDA of US$3.2 billion in 2025, with a P/E ratio of 8x for 2025E and a dividend yield of 7% [7]. - The report highlights a projected EPS of US$0.12 for 2025, with a consistent growth trajectory anticipated in subsequent years [7]. Shuanghui Financials - Shuanghui's market capitalization is Rmb85.3 billion (approximately US$11.9 billion) with a revenue forecast of Rmb59.7 billion for 2025 [8]. - The company is expected to achieve an EBITDA of Rmb8.8 billion in 2025, with a P/E ratio of 17.8x for 2025E and a dividend yield of 5.5% [8]. - The report projects an EPS of Rmb1.48 for 2025, indicating stable performance in the coming years [8]. Operational Insights - WH Group's China business is expected to stabilize in packaged meat and narrow upstream losses, although fresh meat remains under pressure due to a tough comparison base [9][10]. - The US business is projected to see a 3% year-over-year sales growth in packaged meat, with EBIT expected to decline by 3% year-over-year [13][14]. - The international segment is anticipated to trend upwards sequentially, with efficiency enhancements contributing to stable performance [15].

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].