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Yurun expects higher sales

(China Daily/Agencies)
Updated: 2009-03-25 07:53

China Yurun Food Group Ltd, the country's biggest hog processor, said it expects higher sales volumes and improved margins this year as falling pork prices and government stimulus spending spur demand.

"We target a 30-percent gain in sales volume of our frozen and chilled pork, as well as a 10 percent increase in downstream meat products," Chairman Zhu Yicai said yesterday. Prices of pork, China's main meat staple, are expected to fall an average 20 percent this year on ample supply, Zhu said.

Related readings:  Yurun sets out massive expansion plans  Yurun eyes expansion in minor cities  Food group to list on HK stock market

Wholesale pork prices in China, the world's largest producer and consumer of the meat, have fallen almost a third from their February 2008 peak as farmers rebuild stocks after diseases and snowstorms decimated herds. Premier Wen Jiabao said this month the nation's 8-percent growth target is within reach with the government pledging 4 trillion yuan of stimulus spending to revive the economy.

Yurun Food's gross profit margin fell to 13 percent in 2008, from 14.1 percent a year earlier, as the sharp decrease in pork prices in the second half of last year hurt margins of its upstream frozen and chilled pork products, Zhu said yesterday.

Macquarie Group Ltd yesterday cut Yurun Food's stock rating to "neutral" from "outperform", saying the company's 2008 earnings were "disappointing". Yurun Food's profit last year gained 32 percent to HK$1.14 billion, after sales jumped as it adopted a flexible pricing strategy amid the financial crisis, the company said.

Yurun Food shares fell as much as 6 percent yesterday, the biggest decline since Feb 11 and closed at HK$10.12. The stock has rose 11 percent this year, outperforming a 5 percent drop on the Hong Kong bourse.

Yurun Food buys pigs from farmers, slaughters the animals and processes the meat into chilled and frozen pork, including sausages and ham.

CIMG-GK Securities Pte Ltd' Renee Tai also cut the meat producer's rating to "underperform" from "neutral."

"We would take a cautious attitude on Yurun until there are signs their downstream business can benefit from falling pork prices and their margins are improving," said Tai.

China's pork imports may fall this year as its domestic hog herd expands and pork prices fall, Yurun's Zhu said.

"The increase in China' pork imports last year was aimed at stabilizing domestic pork prices, which had been triggered by tight supply due to diseases and snowstorms," said Zhu.

China imported 361.6 million pounds of pork from the US last year, representing a 59 percent increase from 2007, according to the US Department of Agriculture data. In January, China's import of pork from the US fell 90 percent from a year earlier to 5.8 million pounds, the data showed.