CICC: Maintains "Outperform" rating on WH GROUP (00288) with target price raised to HK$7.8

CICC released a research report stating that it maintains a "outperform industry" rating on WH GROUP (00288), expecting the ton profit of the US meat products business to further improve in 2025 due to product structure optimization and cost efficiency. The core net profit attributable to shareholders in 2025 was raised by 3% to nearly $1.47 billion USD, and a new core net profit of $1.57 billion USD was introduced for 2026. Considering the proposed split and independent listing of relevant Smithfield companies, it is expected to boost WH GROUP's overall valuation level and improve market liquidity, leading to a near 10% increase in the target price to HK$7.8. Key points from CICC: Chinese business: 1) Meat products: the bank expects a slight increase in sales volume in 4Q24 and an increase in ton profit year-on-year. It is expected that the channel terminal demand will be relatively weak in 4Q24, with slightly increased sales of meat products. 2) Slaughter: The bank expects a relatively stable profit for the slaughter business in 4Q24, with fresh meat products still facing a competitive environment. US business: 1) Meat products: The bank expects the ton profit trend to continue to improve year-on-year in 4Q24, with sales continuing to slightly decline compared to 3Q24 trend. 2) Pork business: The bank expects the upstream breeding losses to narrow in 2H24 compared to 1H24, mainly due to a slight fall in breeding costs and improvements in the company's breeding efficiency. Additionally, according to a December 2024 news on the Smithfield official website, Smithfield has signed an agreement with VisionAg, a subsidiary of HD3 Farms, to take over ownership of 28,000 sows and their offspring currently owned by Smithfield (this transaction is expected to be completed in early 2025). The company announced an update on the latest proposal for the suggested split and independent listing of Smithfield, with a dilution ratio lower than the November 2024 plan. 1) The company plans to issue up to 40.02 million shares (with the parent company selling 17.4 million shares, issuing 17.4 million new shares, and oversubscribed shares of 5.22 million), which would reduce WH GROUP's stake to about 89.9% based on the maximum issue quantity. 2) Issue price: Priced at approximately $23-27 per share, with an estimated PE ratio of about 13-15. 3) Use of funds: Based on a $25 per share offering price and deducting issuance costs, nearly $400 million USD will be used for general business development (infrastructure, automation, and capacity expansion), with WH Group estimated to receive about $415 million USD net proceeds from selling Smithfield shares, which will be used as general operating funds for WH Group. Risks: Significant fluctuations in US pork prices and breeding costs, relatively weak domestic demand for meat products, and food safety risks.