The company's recent situation

The company issued an announcement: An announcement of possible major transactions and sales matters (i.e. proposed spin-off and separate listing of Smithfield Foods Limited) and physical distribution announcements.

reviews

Smithfield plans to issue up to 20% of its shares in the US stock market. If completed, Wanzhou International will still hold more than 80% of Smithfield's shares. Issuance plan: Smithfield initially estimates that up to 20% of the shares will be issued by Smithfield by issuing new shares and/or by Wanzhou International selling existing shares. That is, if Wanzhou International holds at least 80% of Smithfield's shares after completing the offering, Smithfield will still be a subsidiary of Wanzhou International. Issue scale: The issue price has not yet been determined. Based on current transaction conditions, the current valuation is expected to be no less than the net asset value disclosed in the 2024 930 financial report (i.e. 5.38 billion US dollars). Purpose of issuance: Currently, it is expected to be used for capital investment including infrastructure, automation and meat production capacity expansion. We expect that the Smithfield spin-off will help the Group strengthen regional management and fund-raising capabilities, and will also help boost the overall valuation of Wanzhou International.

Guaranteed quota and physical distribution: Wanzhou International will provide guaranteed quotas to shareholders by physically allocating Smithfield's existing shares or cash in lieu of cash according to the shareholders' respective shares in the company. The company proposes that shareholders will be entitled to a physical dividend on Smithfield shares held by the company, which is equivalent to about 0.35%-0.45% of the total issued share capital expanded by Smithfield through Smithfield's sale.

We believe this will also help protect the interests of existing Wanzhou shareholders.

3Q24 The company's profit exceeded market expectations. The operating profit of 3Q0.24 million was about 0.655 billion US dollars, +60.5% year over year, and the core net profit (excluding changes in biological asset value) was about 0.387 billion US dollars, +108% year over year. The profit situation was better than market expectations. We expect it is mainly related to the high profit level of the US meat products business. Specifically: 3Q24 US meat business operating profit was about 0.24 billion US dollars (+28% year over year), and its meat product tonnage profit and sales volume were about +31% and -2% year over year respectively; 3Q24 US farming business operating profit was about 0.06 billion US dollars, which improved markedly from the first half of the year; 3Q24, the US slaughter business operating profit was 0.026 billion US dollars, and 3Q remained slightly profitable compared to the off-season.

Profit forecasting and valuation

Considering that the US meat business's profit performance in 3Q24 was better than expected, we expect the company to further increase the operating profit of US meat products by optimizing cost management and product structure in the future, and then we will increase 11%/5.2% in 2024/2025 to about 1.35/1.43 billion US dollars. The company traded 7.5/7.2 times 24/25 P/E. Considering profit adjustments and sector valuation changes, we raised our target price by 9.2% to HK$7.1, corresponding to about 8.6/8.3 times the 24/25 P/E and 15.1% share price upward space, maintaining the outperforming industry rating.

risks

Weak demand for meat products, fluctuating feed prices in the US (corn, soybean meal, etc.), food safety issues.