The recurring business continued to see losses (albeit narrowing) in 2H12, however positives include slaughtering volume HoH increases (2H12: +6% YoY, 2012: - 11% YoY) and a likely GPM recovery to 4.5% in 2012. We expect the recurring business loss to increase to HK$ 681M. We expect 20% growth in slaughtering volume in FY13 and a GPM recovery to FY11 levels in 2H13 on quarterly recoveries in volumes/margins, sales channels development, macro improvements, and industry consolidation.
We forecast 2015 slaughtering volume of 30M heads, while the slaughtering capacity utilization rate will improve. We expect hog and pork prices to remain resilient through most of 2013 (mild retreat in 2Q post -CNY) due to an improved supply/demand dynamic.
We continue to believe that this may be a historical trough for both valuation and earnings growth for LT investors. We expect the company to return to positive earnings in 1H13. Our updated 2012- 14 EPS forecasts of HK$ 0.18/0.41/0.63 reflect declining gov subsidies. We maintain