China's Top Pork Processor Logs Profit Gain Despite Sales Drop, Higher Meat Prices
Tang Shihua
DATE:  Mar 25 2020
/ SOURCE:  yicai
China's Top Pork Processor Logs Profit Gain Despite Sales Drop, Higher Meat Prices China's Top Pork Processor Logs Profit Gain Despite Sales Drop, Higher Meat Prices

(Yicai Global) March 25 -- China's largest pork processing firm Henan Shuanghui Investment and Development has managed a 10.7 percent growth in its 2019 net profit despite a sharp drop in sales and the price of pork, its main raw ingredient, shooting up by an average of 42.5 percent last year.

The firm had net profit of CNY5.4 billion (USD760 million) last year on an operating income of CNY60.3 billion (USD8.5 billion), which was up 23.4 percent from the year before, according to the company's 2019 earnings report released yesterday. Net cash flow generated from operating activities was CNY4.4 billion, down 9.3 percent.

Shuanghui, a Chinese household brand most known for its pork sausages, smoked hams and bacon, lifted the price of its meat products six times in 2019 to offset its soaring overheads, with a cumulative price increase of about 20 percent, several securities companies reported.

The food giant is to completely turn to imports to ensure a reasonably priced meat supply as domestically produced pork remains limited and China-US trade tensions ease. This will help boost the company's competitiveness and help it maintain positive growth in sales and earnings, the Luohe, Henan province-based firm said in the report.

An epidemic of African swine fever has caused severe damage to China's hog breeding industry. The country reported its first case in August 2018 in the northeastern province of Liaoning before it spread nationwide, decimating the country's hog herds. Pork prices shot up in the contagion's wake and were almost double in December what they were in the same month in 2018, according to the National Bureau of Statistics.

Shuanghui's income from pig slaughtering increased by 35 percent year on year but its running costs were also up 36 percent. This reduced its gross profit margin by almost 10 percent from the year before to 9.22 percent.

Revenue from meat products was up 8.8 percent from the year before, but operating expenses jumped by 12.26 percent. This saw its gross profit margin drop to 28.5 percent from 30 percent the previous year, the report showed.

Despite the squeeze on earnings in the last few years, Shuanghui has been in the black for 22 straight years since going public at the end of 1998.

The firm [SHE:000895] closed down 1.94 percent at CNY35.98 (USD5) today. Parent firm WH Group [HKG:0288] closed up 11.21 percent to HKD7.34 (USD0.95). The Luohe-based group also owns Smithfield Foods, the biggest pork food company in the US, and other overseas meat business assets.

Editor: Kim Taylor

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Keywords:   Business Performance,Net Profit