April 17, 2007

 

China's Yurun hopes for more consolidation in the pork market

 

 

China's Yurun Food Group Ltd plans to acquire smaller rivals to gain a larger share of China's market for chilled pork and meat products as more consolidation takes place in the country, the company's chairman said.

 

Yurun, one of China's top suppliers of chilled pork and meat products, is optimistic that it can conclude an acquisition this year, Chairman Zhu Yicai told Dow Jones Newswires.

 

Declaring that the next five years would be a period of opportunities for the company, Zhu said Yurun has plans to acquire small companies to eliminate rivals and make gains in production quickly, Zhu said.

 

Companies in its sights are the well-known brands in areas of western and central China, such as Hunan, Yunnan and Guangxi.

 

Sales of chilled pork and low-temperature meat products in China are surging thanks to an increasingly affluent population and changing consumer preferences. Concerns over food hygiene is also having a positive impact on larger meat companies, which are perceived to be stricter in disease monitoring and quality control.

 

However, the country's food processing sector remains very fragmented, and the government has been trying to consolidate the industry by raising entry barriers and phasing out substandard production facilities.

 

China's top three meat producers account for only 5 percent of the domestic market. In comparison, the top three meat companies in the US control more than half the market, Zhu said. It would be ideal if the share of the market held by the top three companie could be boosted to 30 percent in five years. However, how that turns out would hinge on government policies, Zhu said.

 

Yurun, Henan Shuanghui Investment & Development Co. and People's Food Holdings Ltd. are the top three meat producers in China in terms of sales.

 

Zhu said a merger among top Chinese meat companies may be possible but so far Yurun has not been in any talks with its rivals.

 

Zhu said he expects strong demand for processed meat and pork in China to drive double-digit growth in sales this year.

 

For Yurun, 2007's performance should be better than 2006 and sales (this year) should reach double-digit growth while maintaining a stable gross profit margin, Zhu said.

 

Yurun's 2006 net profit rose 36 percent to RMB 428 million, while sales increased 6 percent to RMB 4.72 billion.

 

The company is also optimistic it can double its hog slaughtering capacity to 20 million heads by 2008-2009.

 

Consumption of chilled pork in China is expected to experience growth rates of up to 40 percent from 2006 to 2010, while that of low-temperature meat products is expected to grow up to 30 percent over the same period, according to Macquarie Research Equities.

 

This meant a wealth of opportunities for the company, Zhu noted.

 

However, there would not be reckless expansion: Yurun would slow down its rate of expansion only when the utilization rate of its production facilities falls below 70 percent, he added.

 

Yurun is also tapping the opportunities presented by the growing number of hotels in China.

 

The company hopes that in five years, sales to the growing numbers of hotels in China, which would fetch a higher margin, would account for 30 percent of its total sales of processed meat products, up from 8 percent last year.