June 13, 2007

 

High pork prices bodes well for China's Yurun Food Group

 

 

Soaring pork prices have drawn flocks of foreign investors to China Yurun Food Group, the largest overseas-listed pork company in China.

 

Yurun is China's second largest supplier of chilled pork by revenue.

 

Despite Yurun's stock price having risen 23 percent since the start of the year, analysts have warned that now would be a risky bet as the Chinese government is determined to bring in measures that would stabilize pork prices. 

 

Shares of Yurun jumped 8.4 percent on May 23 , but has since plunged more than 10 percent.

 

If pork prices go down, there are fears that Yurun shares would take a similar hit.

 

China is the world's largest pork consumer and pork prices have risen due to a variety of factors such as increased feed prices, farmers' reluctance to rear pigs due to previous losses and diseases.

 

Top level Chinese officials have given their assurances that measures would be taken to control pork prices.

 

These promised measures has led to an uncertainty over Yurun's stock outlook.

 

Yurun has a market capitalization of about US$1.7 billion and operates in more than 200 Chinese cities, selling mainly chilled and frozen pork and some ready-to-eat meat to supermarkets.

 

Top in China's pork industry is Henan Shuanghui Investment & Development, which is open only for domestic trading on the Shenzhen Stock Exchange. Trading in Henan Shuanghui has been suspended since May last year pending the conclusion of its acquisition by a consortium led by Goldman Sachs Group, of the US.

 

The third-biggest company by revenue, People's Food Holdings, is listed in Singapore. The three are the only Chinese suppliers with a national distribution network in China.

 

As large-scale pork suppliers like Yurun typically store live hogs and chilled meats for weeks, pork which were bought at low prices before the price increases could be sold at high prices now. Since Yurun has a large inventory, the price rise would enable it to make a substantial profit.

 

Analysts also said high pork prices also help Yurun to compete against its smaller rivals and encouraging industry consolidation. Yurun's Chairman Zhu Yicai in April had voiced ambitions of more acquisitions to reach industry consolidations.

 

Moreover, the spate of food-safety issues in China currently may drive more consumers to buy chilled pork found in the supermarkets. This would again play to Yurun's advantage as it supplies these retailers.