April 23, 2024

 

New Hope Liuhe suffers losses - as it tries to keep pig farming business afloat 

 

Last December, New Hope Liuhe announced it would sell 51% of its subsidiary, Shandong Zhongxin Food to China Animal Husbandry Industry (CAHIC), for ¥2.7 billion (US$375.1 million) and 67% of another subsidiary, Deyang Food, to Hainan Shengchen Investment for approximately ¥1.501 billion (US$208.4 million).

 

Zhongxin Food is New Hope's white-feather broiler business, while Deyang Food is its deep-processing food business, accounting for 13% and 8% of New Hope's revenue in 2023, respectively.

 

Both subsidiaries suffered net losses for two consecutive years amid rising production costs and weak consumer demand; New Hope's broiler business' losses were due to the downward impact of the broiler cycle.

 

Meanwhile, the company's pig farming business saw its biggest loss. However, with rising pig prices in recent times, New Hope has not sold this segment of its business. This is the case even as pig prices have been weak over the past two years and deficit has become the norm for major pig producers.

 

Although New Hope forecasted a profit of ¥300 million (US$42 million), this is due to non-operating profits coming from the sales of its broiler and food businesses. Excluding these transactions, the company's actual loss is ¥45 billion (US$6.3 billion).

 

Before the sales of its broiler and food processing businesses, New Hope announced a plan to issue no more than 1.364 billion 'A' shares to up to 35 buyers. It aims to raise around ¥7.35 billion (US$1 billion), of which ¥3.645 billion (US$556 billion) will be used for converting pig farms into smart farms, ¥1.5 billion (US$208.3 million) will be used to acquire holding subsidiaries and the remaining ¥2.204 billion (US$306 million) will be used to repay bank debts.

 

New Hope Liuhe's animal feed business is responsible for 56% of its revenue and has been growing steadily in the past three years. In the first half of 2023, a total of 14.1 million tonnes of feed was sold, a year-on-year increase of 670,000 tonnes, fetching an operating profit of ¥1.966 billion (US$278 million).

 

New Hope's feed business thus helps enable it to better plan with industry development trends in mind. With its strong industry position and focus on research and development, New Hope is expected to weather market challenges — as it awaits the recovery of the Chinese pig market.

 

- David Lin, eFeedLink