WH Group Ltd. Leading Investors To Profits From Pork Wars

About: WH Group Limited (WHGLY), Includes: WHGRF


Harold Goldmeier, Seeking Alpha 

Sep. 17, 2019




·         WH Group's share price upward momentum will be spurred when China actually cuts the Gordian Knot the government announced days ago about tariffs on U.S. pork and soybeans.


·         Management is making the right moves looking to go global, building a portfolio of brand names packaged products like Smithfield, Tyson, and more, expanding its European subsidiaries and operations.


·         WH Group ranks 66th on the China Fortune 500 and the highest-ranked in China's food industry.  Revenue is RMB 149.6B or more than $21B.


WH Group Is On The Move


Investors following my advice back in January who bought shares in China’s largest holding company of subsidiaries building hog herds, slaughtering, importing and processing meat and pork, WH Group Ltd (OTCPK: OTCPK: WHGLY, OTCPK: WHGRF), made a profit. Now, selling at ~$19, with a PE ratio ~14, investors will pocket a 2.7% dividend yield and profits from another rise in share price when China actually cuts the Gordian Knot the government announced days ago about tariffs on pork and soybeans.


News that China is lifting punitive tariffs on American pork is heralded by media outlets as a modest olive branch in easing the trade war with the U.S. There are other reports that China is exempting pork from additional tariffs. Regardless, the announcement emanating from the China Ministry of Commerce is viewed as a political conciliation when in fact it is a domestic economic and social stabilization action. Despite shares are lightly traded and the gormless following by analysts the share price climbed in anticipation of stronger financial health.


WHGLY share price slumped during the summer from the malaise in the investment community. The share price started moving up for no apparent reason two weeks earlier from $15.95 to close to $18.95. The 52-weeks high hit $24.56 per share in May 2019. The tariff news, management’s globalization plans, efficiency investment plans, and conditions in China’s pork market lead me to believe there is room for the WHGLY share price to move up.


It’s The Year Of The Pig


Suffice to say, my enthusiasm for recommending WHGLY was previously stated but some highlights are worth repeating. Pork and meat are staples and obsessions in modern China. Meat and pork consumption are growing among China’s growing middle class. Pork by-products are widely used in Chinese cooking for shortening, flavorings, main dishes, and sausages. Pork is the most popular dish on Chinese recipe shows. And, 2019 is the Chinese New Year of the Pig.


WH Group's businesses are in three main segments: packaged meat products, fresh pork, and hog production. Among them, the packaged meat products segment is the Group's core business representing 50% of total revenue and 90% of total operating profit in 2018.


Pork prices skyrocketed from an epidemic of African Swine Fever now into a second year resulting in the destruction of the half the world’s hog population. China’s herd was decimated by the loss of some 300M. Herd sites are contaminated sometimes for three years. Adding to the strain are tariffs nearing 62% on pigs. Soybeans and soy meal imported to feed the pigs were drastically reduced by the trade war. The Chinese government’s announcement is expected to lead to renewed imports of American pigs and soybeans and comes none too soon for both countries. Herds are falling in numbers in America. The U. S. government is subsidizing soybean farmers. In China, one city is capping prices and rationing pork. Pork is now a luxury item.


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