Pig enterprises "hoarded" for the winter, and Muyuan shares "combined punch" to cope with the downward cycle

Image source: Visual China

Blue Whale financial reporter Xu Xiaochun

On December 6, Muyuan shares released a live pig sales briefing in November, showing that the sales price of live pigs fell further, and the average sales price of commercial pigs in Muyuan shares that month was 13.7 yuan / kg, down 5.56% from the previous month. The company sold a total of 5.295 million live pigs in the whole month, including 5.281 million commercial pigs, 2,000 piglets and 11,000 breeding pigs, achieving sales revenue of 8.791 billion yuan.

In the face of declining pig prices, Muyuan shares have also lowered the expected slaughter volume this year, and even launched a "combination punch" to hoard funds for the winter.

In order to avoid the adverse impact of large fluctuations in feed raw material prices and pig prices on the company's operations, Muyuan plans to hedge corn, soybean meal and live pigs involved in pig breeding and upstream feed industry, as well as financial derivatives trading business on foreign exchange and interest rates.

At the same time, Muyuan Co., Ltd. and its subsidiaries plan to carry out financial leasing business such as sale and leaseback of no more than 3 billion yuan to further alleviate the company's financial pressure. In addition, Muyuan shares will issue ultra-short-term financing bonds and intermediate notes, a total of no more than 8 billion yuan, all used to supplement liquidity.

Not only the decline in pig prices, but also the high debt pressure is also a problem in front of Muyuan shares. As of September 30, Muyuan still had more than 45.3 billion yuan of interest-bearing liabilities such as short-term borrowings on its books, an increase of more than 55% from the end of the previous year.

"Combo punch" to deal with the downward cycle

Judging from the historical commodity pig prices disclosed by Muyuan shares, during the year, the overall price of live pigs showed a downward trend, only in August due to the impact of seasonal consumption and other factors and a brief rebound, and the price of commercial pigs fell to the lowest value of the year again in November. Under the influence of the decline in pig prices, the cumulative income of Muyuan shares in the first 11 months was about 97.899 billion yuan, a decrease of about 8% from the same period last year.

Feng Yonghui, chief analyst of Sopig.com, told the Blue Whale financial reporter that the current decline in the pig market has exceeded expectations, and in previous years, at this point in time, it was basically the most vigorous season for pork consumption, but this year's demand for consumers is still far from the peak season. In addition, the epidemic has led to the selling of abnormal slaughtered pigs in the market, and the decline in prices has led to the continuous decline in pork prices.

In September, Muyuan Co., Ltd. said in an institutional survey that the company expects to slaughter 65 million to 71 million pigs in 2023. However, in the case of a sluggish pig market, the company's adjustment of sales strategy has led to monthly slaughter fluctuations, and at present, according to the latest forecast of the production and sales department of Muyuan Co., Ltd., the expected slaughter range for the whole year of 2023 has been lowered to 62.5 million to 64 million heads.

In the middle of the year, a number of pig companies have lowered the pig slaughter target in 2023, Tianbang Food has dropped from 8 million to 10 million to 6.5 million, Aonong Bio has dropped from 8 million to 6 million, Dabeinong has reduced from 6 million to 5 million to 5.5 million, and Tiankang Bio has reduced from 5 million to 2.8 million to 3 million.

Feng Yonghui said that it is difficult for Muyuan shares to complete the previous slaughter target is also affected by a certain epidemic, and this is not only a problem for Muyuan shares, and there are different degrees of epidemic pressure in the entire industry pig enterprises during the year. Since 2021, a considerable number of pig enterprises have expanded rapidly under the sentiment of overheated investment, resulting in overcapacity in the industry, and the continuous decline in pig prices has led to a downward cycle in the pig breeding industry. Feng Yonghui believes that in the current state of oversupply in the industry, group enterprises must also unite to reduce production capacity, which is beneficial to next year's pig cycle.

In the first three quarters of this year, the net profit loss of Muyuan shares reached 1.842 billion yuan, a sharp decrease of 221.82% from the same period last year. Among the 10 listed companies in the Wind "SW pig breeding" sector, the revenue of Muyuan shares exceeded 82.9 billion yuan, second only to New Hope, relying on the impact of low cost brought by a certain scale effect, the decline in net profit of Muyuan shares is still lower than that of 7 percent of the company.

At the end of the year, in order to cope with the downward cycle, Muyuan shares further increased the control of funds. On the one hand, in order to avoid the impact of large fluctuations in the price of feed raw materials and live pigs, Muyuan Co., Ltd. and its holding subsidiaries plan to use their own funds to carry out hedging business of corn, soybean meal, live pigs and other commodity futures, and the maximum amount of margin and royalty required for related business shall not exceed RMB 800 million.

At the same time, in order to avoid the risk of exchange rate and interest rate fluctuations caused by international transactions such as procurement and cross-border financing, Muyuan shares will also carry out financial derivatives trading business with an amount of no more than 4 billion yuan, and it is expected that the upper limit of the transaction margin and premium used will not exceed 220 million yuan.

On the other hand, Muyuan shares and holding subsidiaries will start to carry out financial leasing to further ease the pressure on working capital. According to the disclosure of Muyuan shares, the company will apply for financing from non-affiliated financial leasing (including financial leasing) companies or banks and other financial institutions in the form of sale and leaseback, with a total financing amount of no more than 3 billion yuan.

Pig enterprises hoard funds for "winter"

However, even so, the debt pressure of Muyuan shares is still imminent. As of the end of the third quarter, the short-term borrowings on the books of Muyuan shares reached 45.334 billion yuan, a significant increase of 55.44% from the end of the previous year. At the same time, the company's books still have non-current liabilities and long-term borrowings due within one year of 7.879 billion yuan and 11.998 billion yuan respectively, while the book balance of monetary funds is only 15.763 billion yuan, a decrease of 24.19% from the end of the previous year.

Under the influence of long-term debt and short-term debt, which are constantly at a high level, the asset-liability ratio of Muyuan shares reached 59.65%, an increase of more than 5 percentage points from the end of the previous year. In addition, in the first three quarters, Muyuan's financial expenses due to borrowing reached 2.25 billion yuan. Muyuan Co., Ltd. is the company with the highest interest expense among the 10 listed companies in the Wind "SW Pig Breeding" sector.

In 2021, Wen's shares issued convertible bonds to raise 9.297 billion yuan, of which 2.779 billion yuan was used to supplement liquidity. At the end of December 2022, Muyuan Co., Ltd. raised about 6 billion yuan through non-public issuance of shares to the controlling shareholder Muyuan Group at a price of 39.97 yuan per share, and all the funds raised were used to supplement liquidity. Since then, Muyuan shares have not been publicly fundraised.

Until December 6, Muyuan shares at the same time to issue ultra-short-term financing bonds and issue medium-term notes plan. According to the announcement, the issuance scale of the ultra-short-term financing bonds of Muyuan shares does not exceed 5 billion yuan, and the longest term of each period does not exceed 270 days. At the same time, the registered size of medium-term notes shall not exceed 3 billion yuan. Muyuan shares through the two ways to raise a total of about 8 billion yuan, but compared with the current debt scale of Muyuan shares is still not sufficient.

The continued downturn in pig prices has put pressure on the entire industry, and recently, a number of head listed pig companies have started financing work and hoarded funds for the winter.

On November 20, Tianbang Food took the lead in throwing out a fixed increase plan, and the company planned to issue shares to specific objects to raise 2.72 billion yuan, of which 2 billion yuan was used for the "digital intelligent pig farm upgrade project" and 720 million yuan was used to supplement liquidity. At the end of the month, New Hope threw out a huge fixed increase plan, raising a total of no more than 7.35 billion yuan, and the raised funds will be used for pig farm biosecurity prevention and control and digital intelligence upgrade projects, the acquisition of minority shares of holding subsidiaries and the repayment of bank debts, with the amount of funds raised being about 3.646 billion yuan, 1.5 billion yuan and 2.204 billion yuan respectively.

Previously, the new Wufeng private placement plan was successfully issued in July, the company raised 1.77 billion yuan at a price of 7.22 yuan per share, in addition to paying consideration to the asset restructuring party, into the construction of the target company's project, the company also allocated about 771 million yuan to supplement liquidity and repay debts. Dawnrays also promoted a fixed increase plan of 1.033 billion yuan during the year.

For the entire industry frequently proposed to reduce costs and increase efficiency, Feng Yonghui believes that the first thing is to do a good job in disease prevention and control, and then carry out scientific feed ratio and refined feeding management on this basis. However, as a premise, pig enterprises need to maintain a smooth capital chain, and finally be able to win in the competition, so that enterprises can survive first, and then reduce costs and increase efficiency from the perspective of production.