Second in China’s meat processing industry. Yurun Food mainlyengages in hog slaughtering, meat processing and sales. It posted salesrevenue of HK$32,315mn and net profit of HK$1,799mn in 2011. Its salesrevenue and net profit CAGR in 2006-11 were 47.6% and 30.2%,respectively. In 2011, its revenue accounted for 7.4% of the total salesrevenue of the meat processing industry in China, ranking second toShuanghui.
The meat processing industry to see sustained growth. A visibletrend of industry consolidation. The meat processing industry in Chinaposted revenue of Rmb352.5bn in 2011. Its revenue and pre-tax profitCAGR in 2004-11 were 22% and 29%, respectively. The collective salesrevenue of the top three enterprises in the industry in 2011 only accountedfor 23% of the industry total. The Outline of the Development Plan for theNational Hog Slaughtering Industry (2010-15) seeks strict control of thenumber of slaughter plants and sets the targets for the elimination ofbackward capacity. Some provinces and cities have begun implementingthe Outline and there is a clear trend of industry consolidation.
Yurun to benefit from industry consolidation with its strategy ofactively expanding capacity across China. In 2011, Yurun’sslaughtering capacity at the upstream was 46.05mn heads and itsdownstream capacity was 304,000 tonnes. Its annual slaughtering andintensive processing capacities are likely to reach 70mn heads and600,000 tonnes, respectively, by 2015E, with a market share of 10% in thedomestic slaughtering industry. Yurun is actively expanding its capacityand it has raised the barriers to entry with inorganic expansion throughlarge-scale FAI. Going forward, given the trend of the government issuingregionally operating licenses based on the size of the enterprise, manysmall players that are not eligible in scale of operation will be eliminated.
As such, Yurun is set to benefit from the industry consolidation.
Potential risks: Risk of cyclical fluctuations in pork prices and risk of foodsafety problems.