January 3, 2008

China's Shuanghui aims for yearly 20 percent profit growth for next 3 years

China's biggest meat processor, Henan Shuanghui Investment & Development Co, says it expects net profit to grow at least 20 percent annually in the next three years as expected slower growth in pig prices helps it protect profit margins.

Shuanghui, partly owned by Goldman Sachs, also plans to expand its upstream pig-raising businesses to fight rising costs, said board secretary Qi Yongyao.

Shuanghui and major rival China Yurun Food Group are under pressure as hog prices almost doubled last year due to the rise in feed prices and disease outbreaks. The high prices caused pig slaughter numbers at Shuanghui to drop 30 percent last year.

To curb rising prices, the Chinese government said it would increase pig subsidies, expand insurance coverage for sows, use state corn inventories and extend loans to pig farmers, all of which it implemented late last year.

In the first three quarters of 2007, Shuanghui's profit grew 21 percent from a year earlier on sales that jumped 39 percent, as rising costs eroded margins.

Although still a respectable growth rate, year 2007 profit growth is a slowdown compared to the average 27 percent growth yearly for the past eight years.

Shuanghui owns two pig farms, both of which turned to profit last year, and the company is seeking other opportunities to expand upstream, Qi said.

Last year, Shuanghui Group's factory for heated processed meat products successfully attained export certificate to Japan. The company also reaped a 183-percent return on investment from its shares in China Shenhua Energy Co.