1H22 results in line with our expectation
WH Group’s 1H22 revenue rose 0.5% YoY to US$13.40bn, and core attributable net profit grew 30.1% YoY to US$701mn (excluding fair value change of biological assets). Its 2Q22 revenue and core attributable net profit increased 1.8% and 24.4% YoY to US$6.84bn and US$306mn. The firm’s 2Q22 profit was in line with expectation.
Trends to watch
US meat product business: The business booked an operating profit of US$237mn in 2Q22. We estimate per-tonne operating profit at US$742, lower than 1Q22 and 4Q21 amid QoQ rise of hog prices in 2Q22. However, the per-tonne profit stayed above historical quarterly average. We are upbeat about the operation of the US meat product business in 2H22, considering that restaurant demand in the US has recovered to 80–90% of pre-pandemic level and labor shortage has returned to normal according to the report of the management team. However, we also foresee HoH pressure for the per-tonne profit of the US meat product business in 2H22, considering the high base in 1H22 and possible HoH increase in hog prices in 2H22. In the medium and long term, the firm plans to enhance the per-tonne profit of the meat product business to over US$600 through measures such as upgrading the product structure, among others.
US pork business: In the US, hog prices are usually higher in 2Q and 3Q but lower in 1Q and 4Q. Hog prices increased more than pork prices in 2Q22, and the firm’s 2Q22 hog production profit thus improved QoQ with our estimated per-unit profit at over US$13. However, slaughtering profit declined QoQ with a mild loss in 2Q22. Overall, the US pork business booked operating profit of US$52mn in 2Q22. In 2H22, we suggest watching hog prices and demand in the US.
European business: Thanks to QoQ rise of hog prices in Europe, the firm’s European hog production business turned profitable in 2Q22 and the overall pork business also turned around. Its European meat product and hog businesses booked a combined profit of US$57mn in 2Q22.
Financials and valuation
Given higher-than-expected per-tonne profit for the US meat product business and lower-than-expected profit for the slaughtering business in China, we raise 2022 and 2023 forecast core net profit 3.4% and 2.1% to US$1.48bn and US$1.48bn. The stock is trading at 6.0x and 6.1x 2022–2023e P/E. We maintain OUTPERFORM. Given higher earnings but forecast and falling average valuations, we maintain TP at HK$6.40 (7.1x and 7.2x 2022–2023e P/E with 17.9% upside).
Risks
Global hog prices, pork prices, and COVID-19 conditions affect the profit of the firm’s full value chains in China, the US, and Europe.