WH Group increased net profit due to the meat processing segment

On August 16, WH Group, China's largest MEAT processing company, released 1H 2022 results. Revenue up 0.5% YoY to $13.4 billion, EBIT up 31.6% YoY to $1.2 billion, earnings per share - by 33.9% y / y to 5.92 cents.

Processed meat sales volumes decreased by 0.1% y/y, although segment revenue increased by 9.4% y/y to $7 billion Pork sales decreased by 5% y/y, revenue decreased by 9.6% y /G.

Due to higher margins in the meat processing segment, the improvement in this segment's revenue had a significant positive impact on the company's EBIT. The EBIT of meat processing was positively affected by the decrease in the cost of raw materials in CHINA, the improvement in production efficiency in the usa . Cost and other expenses growth in Europe outpaced revenue growth, resulting in a reduction in European segment EBIT despite strong revenue growth (+25% yoy) due to higher prices and non-organic growth.

The Board of Directors recommended an interim dividend of HKD 0.05 per share (the same amount as last year's dividend) with an ex-dividend date of August 29, 2022. The dividend yield of the payment is 0.9%.

WH Group Chairman Van Long said the company will focus on adapting its product mix to reduce inflationary pressures, take measures to control costs and improve operational efficiency.

We positively assess the results of the company. Strategic acquisitions in Europe have a positive impact on the company's revenue, with the normalization of energy and raw materials prices in Europe, the EBIT of the segment could significantly improve. Efficiency improvements in the US led to a significant improvement in Meat Processing EBIT (+50.6% yoy) with more modest revenue growth (+14.4% yoy), taking into account growth in costs, delivery, energy and wages. Further initiatives to improve efficiency are also likely to have a positive impact on bottom line.

We affirm our Buy rating on WH Group stock with a target price of HKD 8.07 and an upside of 46.5% through July 2023.

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