Shares of Chinese pig-breeder New Hope expected to keep fattening up even after stock has more than doubled this year

Zhang Shidong

The price of New Hope Liuhe’s stock has already soared 151 per cent this year. But analysts say shareholders’ gains on this Chinese pig breeder stand to get even fatter.

Analysts predict New Hope’s share price will rise to 23.70 yuan over the next 12 months – or a whopping 30 per cent above its current level. That is the consensus of analysts covering it and tracked by Bloomberg.

The Shenzhen-traded stock is also the third best performer on the CSI 300 Index this year, as the spread of African swine fever forced culling of herds and strained supply, driving up prices of pork and chicken, which New Hope also breeds.

New Hope, which is headquartered in the southwest province of Sichuan and is available for trading outside the mainland through the Stock Connect, was riding on the pig play.

The company said it sold 82 per cent more hogs last month than a year earlier and the average sales prices increased 28 per cent to 15.84 yuan per kilogram. The stock slipped 0.4 per cent to 18.27 yuan on Wednesday trading, close to a record high set in June.

“The African swine fever is hard to be eradicated in the short term and pork prices are expected to hit a new high,” said Wu Li, an analyst at Tianfeng Securities. “The company’s rapid expansion of capacity will further strengthen its profitability in the sector.”

Is the world’s largest pork consumer ready to consider substitutes?

New Hope, which began trading on the Shenzhen Stock Exchange in 1998, is owned by Liu Yonghao, China’s 15th richest businessman. Liu, who turns 68 in September, has a personal wealth valued at US$10.3 billion through his businesses spanning from food and dairy to property, according to Bloomberg data.

Industry rival Muyuan Foodstuff had its share-price estimates lifted as well. The stock will rise to 81.29 yuan in the next 12 months, according to the consensus forecast by analysts tracked by Bloomberg. Muyuan’s shares lost 0.6 per cent to 72.28 yuan on Wednesday, taking its gain to 151 per cent this year as the top performer on the CSI 300.

The failure to contain African swine fever, which has swept every province in the mainland since it was discovered a year ago, has spurred ever higher pork prices in the world’s biggest consumer of the meat. As farmers slaughtered infected pigs, the stock of breading sows, a gauge of underlying pork supply, dropped by a record 26 per cent from a year earlier in June.

China ‘could feel swine fever blow for next decade’

Pork supply may decrease 15 per cent from a year ago in the first half of 2020, leaving a shortfall of at least 8 million tons, according to the estimate by Industrial Securities. Strained supply has been pushing up prices. Average pork prices rose to 19.42 yuan per kilogram last week, near a record, with Guangdong leading the gain with prices exceeding 20 yuan, according to Shenwan Hongyuan Group.

Rising pork prices were already biting into the profits of some downstream companies. Hong Kong-listed WH Group, the world’s biggest processor of the meat, said first-half profits dropped 17 per cent because of higher costs of raw materials, while its affiliate Shanghai-traded Henan Shuanghui Investment and Development said net income fell by 0.2 per cent.

‘Record high’ pork prices to continue as swine fever strangles supply

Nevertheless, Shenwan Hongyuan says pig-breeding stocks will continue to be a sure bet for investors, with few signs of easing of pork supply.

“We continue to be positive on the investment opportunity in the second half, particularly the improvement in profitability because of price increases,” said Zhao Jinhou, an analyst at the Shanghai-based brokerage.

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