November 2, 2022


Outlook for Wens Foodstuff negative, according to Fitch Ratings



Fitch Ratings has affirmed Chinese hog and broiler producer Wens Foodstuff Group Co., Ltd.'s long-term foreign-currency issuer default rating (IDR) at 'BB+', with the outlook being negative.


The agency has also affirmed Wens' senior unsecured and US-dollar note ratings at 'BB+'.


The affirmation reflects the company's efforts to cut hog production costs, which has helped restore its cost leadership and normalise its margin. Wens remains as China's second-largest hog breeder and a leader in broiler production, according to Fitch, and it expects the company has resumed operating cash flow generation and worked to restore a moderate leverage profile, along with discretion for large expansionary capex.


The negative outlook is based on the sensitivity of Wens' cash flow generation to volatile market conditions and the corresponding impact on its deleveraging pace.


Fitch highlighted there is low visibility of the duration and extent of the current hog-price upcycle. While sow and hog inventory remain sufficient, consumption may weaken, especially for the food-service sector. This may slow a profit recovery and deleveraging and may be made worse by an increasing difficulty in further reducing production costs amid high grain prices.


Fitch added that it may revise the outlook to "stable" if Wens demonstrate a longer record of cash generation to replenish its balance sheet following a period of losses.


- Fitch Ratings

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