August 1, 2012

 

 

Genus is improving its foothold in China's porcine market by agreeing to a partnership with Shaanxi Yangling BeSun, which supports production of 10 million slaughter pigs yearly.

 

Genus, the animal genetics group, has invested GBP8.7 million (US$13.7 million) cash for a 49% stake in a joint venture with Shaanxi Yangling BeSun, and will also provide breeding animals to stock-up the business.

 

The agreement boosts Genus' growth in a country which the group in May named as a key part of a drive to boost its presence in emerging markets.

 

China is set to produce more than 51.6 million tonnes of pork this year, out of a world total of 104.4 million tonnes, and consume 52.0 million tonnes, according to USDA estimates.

 

"China alone offers the largest opportunity pork production, [accounting for] approximately half of the world pork consumption," Genus said on July 31.

 

Karim Bitar, the Genus chief executive, said that the tie-up with BeSun "will provide us with an excellent stepping stone to expand our business".

 

The group added that it was "continuing to pursue" other joint ventures in China.

 

The tie-up with BeSun will be based at a newly completed farm fitted with facilities including an air filter to reduce disease, which has proven a persistent threat in particular to China's pork industry.

 

Sows produced by the tie-up will be split between the two groups with BeSun's used in pork production, and Genus in its efforts to expand its Chinese operations.

 

"Once in full operation, the herd will underpin production of 10 million slaughter pigs per year," the group said.

 

At broker Panmure Gordon, analyst Graham Jones said: "This move is in-line with Genus's strategy laid out in May, although the acquisition of an already built facility means the returns will come quicker than a start-up operation."

 

However, he retained a "sell" rating on Genus shares, with a price target of GBP0.1279 (US$0.2), noting the threat to the company's livestock group customers from elevated grain prices.

 

"Genus's growth potential in China is the basis for the stock's high rating, although we remain concerned about the short-term outlook for its customers given the sharp increase in feed costs for fiscal 2013," he said.

 

Genus shares closed up 0.1% at GBP0.1280 (US$0.20) in London.