WH Group jumps 9% after China pork prices push up profits

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WH Group, the world’s largest producer of pork, reported profit grew 17 per cent in 2016 as the company imported more pig meat into China in response to rising domestic prices.

Hong Kong-listed shares in the company rose as much as 9 per cent after it reported net profit for the year at $1bn, up from $866m in 2015. This beat a median analyst estimate of $953.5m compiled by Bloomberg.

The Sino-US company, formed after the $7bn takeover of Smithfield Foods by China’s Shuanghui International, reported operating profit from its fresh pork sector rose 141.2 per cent year on year to $545m.

WH Group said:

In China, despite the fact that pass through of prices became more challenging when hog prices rose rapidly and sustained at high level during the first half of the year as a result of demand suppression, the market conditions improved when hog prices came down gradually in the second half of the year and we were also able to expand our sales of competitive imported pork to provide an additional profit stream to our business.

The company said an imbalance of supply saw hog prices in China rise in the first half of 2016, with the average price for the year at Rmb18.6/kg ($2.7), up 22 per cent compared to 2015. Prices hit a peak in May of around Rmb20.5/kg, falling to Rmb17.5/kg in December, the company said.

Higher prices in May saw the government release pork reserves to cool the cost of the country’s staple source of protein. WH Group said its Chinese production business benefited from the higher hog prices, achieving higher profitability for the year.

The company said Chinese pork imports rose 108 per cent compared to the previous year, citing figures from China’s customs administration. It also noted that the volume of pork and pork products exported to China from the US rose 78.3 per cent during 2016, citing data from the US Department of Agriculture.

Shares in WH Group fell back slightly from early gains to be up 8 per cent at HK$6.55. The benchmark Hang Seng index was up 0.5 per cent.

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