When pigs have wings

WH Group sizzles, but it isn’t China’s most valuable pork firm


Wens: first chickens, now pigs

Belle International joined Hong Kong’s Hang Seng Index in 2012. But the footwear maker was taken private in July and investors have been betting on the firm that would step into its shoes on the city’s index.

The newcomer is WH Group, China’s biggest pork processor whose units include Smithfield Foods in the United States. On Monday it was classed as a Hong Kong blue-chip in changes that are part of the index manager’s quarterly review, bringing the total number of constituents to 50.

The Henan-based firm’s market cap has climbed more than 30% this year to a record high of $15.5 billion. That’s a meaty valuation but WH isn’t even China’s most valuable pork producer. That title belongs to Wens Foodstuff, which is listed in Shenzhen’s Growth Enterprise Market (GEM). Despite a 20% decline in its share price year-to-date, the Guangdong-based pig and chicken farm is worth Rmb117 billion ($17.6 billion).

Wens was founded in 1983 by Wen Beiying, a worker at a chicken farm in Guangdong, who got together with family members and a schoolmate to start one of the earliest privately-owned enterprises in China. At the time the authorities had adopted more flexible policies on agricultural firms – the Liu brothers founded the better-known New Hope Group a year earlier – and Wens grew its chicken business by paying for other farms with the company’s shares.

The company allowed most of its employees to become shareholders. This collective ownership came with a lot of incentives for its stakeholders and it gave Wens a reputation as a “people’s commune”. With strong support from the local government, Wens expanded rapidly to become the leading chicken farmer in Guangdong and by 2007 it was the first agricultural firm from the province to report more than Rmb10 billion in revenues.

After the company’s listing in 2015, more than a thousand of Wens’ shareholders or employees enjoyed net worths of more than Rmb10 million, the Nanfang Daily reckoned. According to “rich list” compiler Hurun’s 2016 ranking, Wen Pengcheng (son of Wen Beiying) is worth Rmb14 billion – and he is just one of the eight Wen family members appearing on the list.

Wens has since expanded into pig farming, which now accounts for 65% of its income. However, it has just reported a 75% decline in net profit to Rmb1.8 billion for the first six months this year. The company blamed falling hog prices as rivals like WH Group have ramped up domestic production and increased pork imports. New Hope has just reported a planned surge in hog production in the next two years in Sichuan, Shandong and Jiangsu as well, after increasing its herd by more than 2.6 million hogs in the first half.

But Beijing News also notes that Wens hasn’t been wholly focused on its core business. According to the newspaper, the company has invested in minority stakes in at least 14 listed firms around China, including riskier start-ups on the New Third Board, an over-the-counter bourse based in Beijing.

In May this year Wens said it would speed up the expansion of its investment and finance business. A month later, it announced a plan to put up to Rmb1 billion into COFCO Capital, a unit of state-backed food giant COFCO. Investors may be hoping that Wens will benefit from taking part in mixed ownership reforms at COFCO, but Investors Journal reports that Wens, which produced about 17 million pigs in 2016, is also planning to build more than 5,000 retail outlets in southern China to sell food products under its own brand.

“Many companies in the agribusiness including Wens have been trying to build a vertically integrated chain linking their farms to the dining tables,” the magazine observed. “However, most of them are in the investment phase and there has not been a successful case yet.”

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