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.

Summary of WH Group and Shuanghui Conference Call Industry Overview - **Industry**: China Consumer Staples, specifically focusing on the pork and packaged meat sectors Key Points and Arguments 1. Packaged Meat Outlook - Positive outlook for packaged meat in 2H25, driven by stronger demand in China and Europe, while the US market remains steady [1][2] - Management expects higher year-over-year (yoy) growth in volume and operating profit for the China business (Shuanghui) in the second half of the year, supported by favorable hog prices and lower raw material costs [2] 2. Poultry and Hog Production - The company is nearing breakeven/profitability in its poultry and hog production business in China [1] - US hog production profit forecast raised to $105 million for the full year, up from the higher end of the previous guidance of $100 million [1][2] 3. Slaughtering Business Improvement - Improvement in the slaughtering business in China, with strong volume growth despite lower unit profit [1] - Management anticipates lower hog production costs in China to align with industry averages, projecting all-in costs around RMB 14/kg by 4Q25 [2] 4. Strategic Focus and Shareholder Returns - WH Group is committed to shareholder returns, increasing the payout ratio to no less than 50%, up from 30% previously [1] - Long-term focus includes optimizing the pork supply chain, investing in core packaged meat business, diversifying meat products, and automating production processes [9] 5. Sales Channel Dynamics - Traditional sales channels (supermarkets, agricultural wholesale) saw a 13% yoy sales decline in 1H25, while new channels (snack discounters) achieved over 20% yoy growth [2][8] - New products, such as Spicy Sichuan Pepper Chicken Sausage, are gaining traction, contributing approximately 10% to total sales volume in 1H25 [8] 6. Financial Projections and Valuation - Adjustments made to WH Group's 2025-27E EPS by +0-2% and target price raised to HK$9.4 from HK$8.6, reflecting a narrowing NAV discount from 35% to 28% [10][11] - Shuanghui's 25-27E NP increased by 0.3-0.4%, with a target price of RMB 25.3 based on a 17X 2025 P/E [12][19] 7. Risks and Challenges - Key risks include competition in packaged meat, demand fluctuations for fresh pork, and potential food safety issues that could impact consumer trust [19][21] - Volatility in live hog prices and higher corn prices could pressure margins for Shuanghui's pork and packaged meat segments [21][20] 8. Market Position and Future Outlook - WH Group's strategy includes focusing on cost-saving measures and disciplined pricing to enhance profitability in international markets, particularly the US and Europe [2] - The company anticipates robust growth in the pet food industry in the US, leveraging synergies from raw materials and existing clients [8] Additional Important Information - Management's commitment to continuous improvement in operational efficiency and product offerings is evident, with a focus on high-value products and innovative marketing strategies [2][8] - The overall sentiment from the management indicates a strong belief in the company's ability to navigate market challenges and capitalize on growth opportunities in the consumer staples sector [1][2]

Summary of WH Group and Shuanghui 2Q25 Earnings Call Industry Overview - The report focuses on the China Consumer Staples industry, specifically the pork and packaged meat sectors, highlighting the performance of WH Group and Shuanghui in 2Q25. WH Group Key Points 1. **Revenue Growth**: WH Group's revenue increased by 12% year-on-year to US$6,834 million, exceeding expectations by 2% due to higher US hog production, despite weaker fresh pork sales in China [2] 2. **EBIT Performance**: EBIT rose by 3% year-on-year to US$656 million, 6% above expectations, attributed to lower SG&A expenses and improved profitability in both China and US packaged meat businesses [2] 3. **EBIT Margin**: The implied EBIT margin for 2Q25 was 9.6%, a decline of 0.8 percentage points year-on-year but 0.4 percentage points above expectations [2] 4. **Net Income**: Group level net income increased by 2% year-on-year to RMB 398 million, 7% above expectations [2] 5. **Positive Management Outlook**: Management expressed optimism regarding packaged meats in China, anticipating volume and unit profit growth in the second half of 2025 [4] 6. **US Hog Production Guidance**: Full-year guidance for US hog production profits was raised to a range of $0-$100 million, reaffirming other segment guidance amid market volatility [4] 7. **Dividend Announcement**: An interim dividend of HK$0.2 per share was announced, up from HK$0.1 in 1H24, with management indicating that full-year dividends will be based on cash flow and will not be less than 50% of net profit [4][5] Shuanghui Key Points 1. **Revenue Performance**: Shuanghui's revenue increased by 6% year-on-year, although it was 5% below expectations due to weak fresh pork sales [3] 2. **EBIT Growth**: EBIT grew by 12% year-on-year, 2% above expectations, with gross profit margin 0.9 percentage points higher than expected, partially offset by increased selling costs [3] 3. **Market Dynamics**: The overall slaughtering business faced challenges due to declining profits from frozen products and increased competition, with a noted 3% decrease in industry slaughter volume [12] Additional Insights 1. **Hog Price Outlook**: Hog prices are expected to trend downwards in the second half of 2025, with a slight rebound anticipated in July-August, but not exceeding RMB 16/kg [12] 2. **Packaged Meat Volume Growth**: In the US, packaged meat volume grew by 4.5% year-on-year in 2Q25, supported by a later Easter holiday, with management maintaining cautious full-year guidance [12] 3. **European Market Trends**: In Europe, live hog supply is expected to increase in 2025, leading to a decrease in pork prices, with sales volumes for meat products continuing to grow despite lower farming profits [12] 4. **Investment Risks**: Key risks include competition intensity in packaged meat, demand fluctuations for fresh pork, and potential food safety issues that could impact consumer trust and financial performance [15][18] This summary encapsulates the key financial metrics and management insights from the earnings call, providing a comprehensive overview of WH Group and Shuanghui's performance and outlook in the consumer staples sector.

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].

Financial Data and Key Metrics Changes - In 2024, WH Group reported a revenue of $25.941 billion, a decrease of 1.1% compared to the previous year [3] - Packaged meat sales volume was 3.1 million tonnes, down 3%, while pork sales volume was 3.765 million tonnes, down 4.9% [3] - EBITDA increased by 56.1% to $3.078 billion, and operating profit rose by 63% to $2.4 billion [4] - Profit before tax surged by 115% to $2.208 billion, with profit attributable to owners of the company reaching $1.471 billion, up 142% [4] - Basic earnings per share increased to $0.1147 [4] Business Segment Data and Key Metrics Changes - Packaged meat contributed 52.6% of total revenue, while pork contributed 40% of revenue and 14.8% of profit [4][5] - North America accounted for 50.3% of revenue and 49% of profit, while Europe contributed 14.5% of revenue and 11.4% of profit [6] - Operating profit from packaged meat was $1.174 billion, up 9.5%, with a margin of 14.1% [15] - The pork business saw an operating profit of $170 million, with a margin of 2% [15] Market Data and Key Metrics Changes - In China, the number of slaughtered hogs decreased by 3.3% to 703 million heads, with an average hog price of RMB 17.04 per kilo, up 10.6% [10] - In the U.S., the average hog price was $1.42 per kilo, up 4.5%, while in Europe, it was EUR 1.59 per kilo, down 7.9% [11] - Corn prices in the U.S. averaged $4.27 per bushel, down 23.3% [12] Company Strategy and Development Direction - WH Group aims to focus on core packaged meat business, improve fresh meat operations, and maintain appropriate hog production levels [16] - The company plans to reduce hog production from 14.7 million heads in 2024 to below 10 million heads in the future [17] - The strategy includes industrialization, diversification, internationalization, and digitalization to enhance competitiveness [19][30] Management Comments on Operating Environment and Future Outlook - The global economic recovery is slow and uneven, with inflation moderating and cost pressures alleviating [8] - Management expects challenges in demand but anticipates benefits from lower raw material costs in 2025 [21][22] - The outlook for the U.S. pork market is positive, with expectations of strong demand and favorable pricing dynamics [35][36] Other Important Information - The company reported strong operating cash flow of $2.519 billion, up 55.8%, and a low leverage ratio of 0.29 [7][8] - WH Group completed the acquisition of a Spanish packaged meat producer, Argo, to expand its high-end packaged meat business [19] Q&A Session Summary Question: How will WH Group maintain high profitability per metric ton in 2025? - Management indicated that while profitability per ton may decrease in 2025, it will remain relatively high due to low raw material costs and adjustments in product mix [21][22] Question: What measures will be taken to increase packaged meat volumes in 2025? - Eight measures were outlined, including reforming the sales team, enhancing market research, and increasing marketing investments [23][24][25][26][27] Question: Will there be changes in strategy after the Smithfield IPO? - Management confirmed that the strategy remains focused on strengths, with an emphasis on industrialization, diversification, and digitalization [30] Question: What is the outlook for the first quarter in China and the U.S.? - The outlook for China is stable with potential growth, while the U.S. market shows strength in hog prices and meat prices [38][41] Question: How will WH Group manage labor costs in the U.S.? - The company has not experienced significant impacts from labor costs and is focused on automation and becoming an employer of choice [70][72]