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Shuanghui: 24 Per Cent Rise in Full Year Net Income

by 5m Editor
20 March 2009, at 8:35am

CHINA - Henan Shuanghui Investment & Development Co (HSIDC), the listed arm of China's biggest meat processor Shuanghui Group, yesterday posted a 24 per cent increase in 2008 net profit, thanks to robust meat sales and improved inventory control and production management.

Net income rose to 699 million yuan, or 1.15 yuan per share, while sales climbed 19 per cent from a year ago to 26 billion yuan, the company said in its earnings report.

The shift from soaring live pig prices, which hit a record high in the first half of last year, to the slack demand for meat products in the second half caused by the economic slump "exerted great pressure on the business", the company said.

The company, based in Central China's Henan province, slaughtered 3.17 million live pigs last year, down 16.36 per cent from a year earlier, while its processed meat products totaled 834,000 tons, the Shenzhen-listed company said.

Improved inventory management and measures such as energy-saving and joint bulk procurement helped the company reduce negative impact on its business performance last year, the meat processor said.

Shares of Shuanghui Investment yesterday climbed 2.43 per cent to close at 32 yuan in Shenzhen trading.

"The results are generally in line with our estimates and the company is likely to maintain such dynamic growth momentum this year," said Peng Danxue, a senior food industry analyst at Everbright Securities.

Falling pork prices and rising meat sales, Mr Peng said, will drive Shuanghui's business performance this year as its main profit stream comes from its frozen meat products.

The meat processor, in which US bank Goldman Sachs and Cayman Islands-registered CDH Investment have a combined 51.45 per cent stake, said it will spend 300 million yuan to expand its frozen meat production capacity and projects.

Meat production is expected to register 3 to 5 per cent annual growth until 2010, according to the China Meat Association.

Total number of live pigs is forecast to reach 730 million next year and meat output will amount to 87 million tons, of which 14 million will be processed, the industry association said.

Shuanghui will eye both domestic and international markets and improve its product mix to maintain its leading position in the country, it said.

Company Setting Out to Expand

Shuanghui said it will spend almost 3 billion yuan (US$439 million) on acquisitions and expansion this year as the financial stifles affect operations of smaller rivals.

The investment, 50 per cent more than last year’s, will be used to build or acquire slaughterhouses and meat-processing plants, said Chairman Wan Long. "The financial crisis is a great opportunity."

China’s consumer spending grew at the slowest pace in two years as economic expansion slowed to a seven-year low and 20 million rural migrant workers lost their jobs. Still, Premier Wen Jiabao said the country’s 8 per cent growth target is achievable with the 4-trillion-yuan stimulus package.

"I’m confident” that the stimulus policies will work and the demand of 1.3 billion people for meat is still huge," Mr Wan said. There will be a decline in meat consumption in cities as workers return to the countryside but “overall it won’t decline by much,” he said.

The cheaper price of pork, which has plunged by about 40 per cent from a record high last year, should spur consumption again, Wan said. The number of pigs slaughtered in China last year rose 7.6 per cent from a year ago to 608 million head, while stocks as of December had increased 5.2 per cent from a year ago to 463 million, data from the Ministry of Agriculture showed.

Shuanghui, which is about 70 per cent owned by Goldman Sachs Group Inc, and rival China Yurun Food Group Co are expanding as consumers are encouraged to buy meat in supermarkets instead of traditional wet markets because of food-safety concerns. China Yurun in November said it plans to double capacity over the next two years.

The company's full-year profit may rise by 52 per cent to 3.2 billion yuan this year because of lower water, electricity and gas costs while sales may grow to 40 billion yuan from 35 billion yuan last year, Wan said. The company’s sales may jump to 50 billion yuan in 2010, he said.

The company will sell 3 million tons of meat products this year, compared with 2.5 million last year.

“Our sector has endured all sorts of hardships,” including blue ear disease and record pork prices in 2007-08, he said. The current financial crisis “isn’t the worst.”