Liu Yonghao has been in business for 40 years, and New Hope has reached the "harsh winter"

Produced by Radar Finance and Economics, edited by Li Yihui, Deep Sea

Under the strongest pig cycle, listed pig companies have suffered large-scale losses, and even industry bigwigs can't sit still.

Recently, at the 2023 Annual Meeting of Chinese Business Leaders, Liu Yonghao, chairman of New Hope Group, said frankly that although New Hope has a strong family background, the unprecedented difficulties it is currently facing also objectively exist. The entire breeding industry has been hovering at the bottom for nearly three years, and almost all farmers are losing money.

According to the financial report, from 2021 to the first three quarters of this year, New Hope, which is mainly engaged in feed and breeding, has a cumulative loss of 14.9 billion yuan. As of the end of the third quarter, New Hope's debt-to-asset ratio reached 72.76%, the highest level since its listing.

However, the huge loss caused by New Hope is not only affected by the pig cycle, but also related to the company's aggressive expansion. Liu Chang, chairman of New Hope, once said that after the rapid expansion of the pig industry, the management ability did not keep up in time, which affected production efficiency and profitability.

In this context, New Hope embarked on the road of "self-help". On the one hand, the company will clear some pig farm resources and revitalize assets, on the other hand, New Hope will promote a fixed increase plan of 7.35 billion yuan, and the funds raised are intended to be used to acquire assets, upgrade pig farms and repay debts.

Since its establishment, New Hope Group has spent an extraordinary 40 years, and China's largest feed producer once helped Chairman Liu Yonghao become the richest man in China. But now, New Hope needs to survive the winter.

Plans to increase more than 7.3 billion "self-help"

Pig prices are still falling.

According to the National Development and Reform Commission, as of December 6, the national pig price was 14.63 yuan/kg, down 1.35% from November 29, a new low since the end of July.

In addition, as of the week of December 6, the national pig feed price ratio was 4.34, down 0.23% from the previous month. According to the current price and cost, the average loss of pig breeding heads in the future is 7.41 yuan.

Many market views believe that pig prices are still under pressure in the short term. Guojin Securities said that in 2023, the number of live pigs slaughtered will continue to grow, the state of oversupply in the industry has not changed, and the annual breeding profit is expected to be negative, looking forward to 2024, it is expected that the supply and demand pattern will be difficult to improve in the first half of next year, and the price of live pigs will remain sluggish.

Under the situation of oversupply in the market, the sales price of listed pig enterprises has further declined. According to the briefing on the sales of live pigs in November, the company sold 1.6759 million live pigs in November, an increase of 13.89% month-on-month and a year-on-year decrease of 0.89%, and the sales revenue of live pigs was 2.38 billion yuan, an increase of 1.67% month-on-month and a year-on-year decrease of 31.65%.

Compared with the sales revenue and sales volume have improved month-on-month, pig prices still continue to decline. The average sales price of commercial pigs in November was 13.95 yuan/kg, a decrease of 6.44% month-on-month, a year-on-year decrease of 40.13%, and a new low in the year. The other two leading pig companies, Muyuan shares and Wen's shares, also saw a year-on-year and month-on-month decline in the average sales price in November.

In this regard, New Hope explained that the main reason for the large year-on-year decline in the average sales price of commercial pigs is the fluctuation of the industry cycle, the pig price rose rapidly in the same period last year, the base is high, and the industry production capacity has been relatively oversupplied since this year.

The continued slump in pig prices has put pressure on New Hope's financial statements. According to the financial report, in the first three quarters of this year, New Hope achieved operating income of 106.748 billion yuan, an increase of 6.3% year-on-year, and net profit attributable to the parent company was -3.858 billion yuan, a year-on-year decrease of 42.52%.

At the same time, New Hope's debt ratio climbed rapidly, from 53.06% at the end of 2020 to 72.76% at the end of the third quarter of this year. At the end of September 2023, the company's total liabilities were 96.997 billion yuan, short-term borrowings were 16.456 billion yuan, and current liabilities were 57.761 billion yuan. However, the company's monetary funds are 11.597 billion yuan, and the short-term debt repayment pressure is greater.

In this context, New Hope has launched a large fundraising. On the evening of November 30, the company released a fixed increase fundraising plan, planning to raise 7.35 billion yuan, of which 3.646 billion yuan will be used for pig farm biosecurity prevention and control and digital intelligence upgrade projects, 1.5 billion yuan will be used to acquire minority shares of holding subsidiaries, and 2.204 billion yuan will be used to repay bank debts.

At present, New Hope's total liabilities are approaching 100 billion yuan, and it has become a top priority to alleviate the tension in the capital chain. However, some investors are worried that the sluggish share price of New Hope may affect the company's promotion of the private placement plan.

On December 4, New Hope's share price fell to an intraday low of 8.83 yuan, a new low since February 21, 2019. In the year alone, the company has fallen by about 25%.

Previously, Lixun Precision and Tongwei took the initiative to stop the private placement because the stock price was too low. On the evening of December 1, Lixun Precision announced the termination of the non-public issuance of shares in 2022, one of the reasons is that the company's current stock price is at a low level, and in order to protect the interests of investors and all shareholders, the company intends to terminate the non-public issuance of shares.

When Tongwei terminated the 16 billion yuan private placement plan, it also said that based on the changes in the current capital market environment, the company's value was significantly underestimated, and in order to safeguard the interests of all shareholders, it planned to terminate the issuance of shares to specific objects.

From a massive expansion to a contraction of the front

In addition to the external environment, the bitter fruit of New Hope's loss actually occurred two years ago.

Looking back, 2013 was an important turning point for New Hope. This year, Liu Yonghao, who was over sixty years old, decided to hand over the listed company New Hope Liuhe to his daughter Liu Chang.

As a rich "daughter", Liu Chang is not a typical good girl. At the age of 14, she aspired to be a socialite, and when she was in junior high school, she became Miss Avon, and opened a jewelry store on Chunxi Road in Chengdu.

In 1996, 16-year-old Liu Chang was sent abroad to study. Later, in a speech at Peking University, Liu Chang revealed that he was very depressed when he was in the United States, dyed his yellow hair and white hair to express his different self. But the difference in the way of thinking between China and the United States has also taught her to try to understand her own differences and learn to accept herself.

In 2002, after Liu Chang returned to China, he entered New Hope in a low-key manner under the name of "Li Tianmei" and engaged in administrative management. After years of experience in different positions, the fledgling Liu Chang walked to the front desk and began to take charge of New Hope.

Previously, the sale of feed had been New Hope's main source of income. However, three years after Liu Chang took over, New Hope officially set foot in downstream pig breeding from the feed industry.

With feed profits declining year by year, New Hope's business model has further shifted from feed sales to commercial pig sales. In 2018, the company set the goal of slaughtering 8 million pigs in 2020 and 25 million in 2022.

Two years later, New Hope caught up with the Super Pig cycle. Under the influence of various factors such as swine fever epidemic and environmental protection and production restrictions, from the end of 2018 to mid-October 2019, the price of live pigs rose from 10.1 yuan/kg to 40.29 yuan/kg, an increase of 3 times.

In the midst of the rise, pig enterprises have made a lot of money, and the actual controllers behind them have staged various wealth myths, and a large amount of social capital has poured into pig breeding, and New Hope is no exception.

Pig farming requires the construction of a factory, and New Hope's solution is to acquire and build itself. According to media statistics, in 2019, New Hope merged 7 companies, and in 2020, it merged 12 more. According to the public financial report, from 2019 to 2021, New Hope's capital expenditure on engineering construction totaled more than 70 billion yuan.

To build a factory, funds are needed, so Liu Chang transferred Zhang Minggui, who is doing real estate, to New Hope as president. In Liu Chang's view, Zhang Minggui's "ability to fund turnover, construction speed and quality assurance in the real estate field are all needed to raise pigs."

After more than a year of large-scale expansion, New Hope further adjusted its target in the second half of 2020: the target of 8 million heads for slaughter in 2020 remains unchanged, the target of 30 million heads for 2021 will be challenged, and 40 million heads will be guaranteed for slaughter in 2022.

In 2022, New Hope's annual pig slaughter has reached 14.62 million, although there is still a gap from the original slaughter target, but it has ranked third in the country.

However, in 2021, there will be overcapacity in the pig market, and after the price of live pigs falls, the market price and cost will be inverted, and the more you sell, the more you will lose.

Flush iFinD data shows that from 2021 to the first three quarters of 2023, New Hope has suffered continuous losses, with a cumulative loss of about 14.91 billion yuan during the period, which almost wiped out the company's total profit from 2016 to 2020, with a cumulative profit of 16.44 billion yuan during this period.

At the performance briefing in June this year, in the face of investors' questions about the previous radical expansion, Zhang Minggui said frankly that at that time, it was indeed underestimated that the dilution of management capabilities after the rapid expansion of the scale was underestimated, and if it could really go back to the past, it would be more stable in the pace of expansion.

Under pressure, New Hope also began to shrink its front. According to public information, since 2022, New Hope has sold 18 pig farms under construction and put into operation to Chengdu state-owned assets twice, returning 2.243 billion yuan.

In the institutional survey in early December, the management revealed that in terms of asset revitalization, it will cooperate with some regional private and state-owned enterprises to jointly promote the further improvement of capacity utilization; at the same time, it plans to surrender 50 projects this year, and 41 projects have been completed in the first three quarters, and will be promoted in the future.

In addition, reducing costs and increasing efficiency are also key measures of New Hope. In November, the complete cost of slaughtering fat pigs in the company's operation line was reduced to about 15.6 yuan/kg.

However, compared with the average sales price of 13.95 yuan/kg commercial pigs in the month, this cost is still above the sales price, and the cost is inverted.

Liu Yonghao's family foundation is still thick

New Hope's pig business continues to lose money, but it is not enough to make the former richest man Liu Yonghao break his bones.

"New Hope has been in business for 41 years, has gone through many cycles, and has seen a lot of ups and downs. In a recent speech, Liu Yonghao said that everyone on the New Hope Ship has a thick bottom, and it is a treasure to take out a piece of it, and firmly believes that the winter will pass and the storm will definitely stop.

Liu Yonghao's four brothers went to sea to start a business, which began in 1982. At that time, the four brothers all had enviable "iron rice bowls": the eldest Liu Yongyan worked in the computer institute of Chengdu 906 Factory; the second eldest Liu Yongxing worked in the Xinjin County Education Bureau; the third eldest Liu Yongmei worked as an agricultural technician in the county agricultural bureau; and Liu Yonghao was the fourth who graduated from Sichuan Vocational and Technical College and stayed on to teach.

At the initial stage, the Liu brothers sold their watches and bicycles to make up 1,500 yuan, earned the first pot of gold from quail breeding, and then relied on Sichuan, a major pig-raising province, to switch to feed production, calling the leading Zhengda feed at that time.

In 1989, "Hope Brand" No. 1 suckling pig feed was introduced to the market, monopolizing the Chengdu feed market through a price war. With the gradual deepening of reform and opening up, the careers of the four Liu brothers are getting bigger and bigger.

In 1992, the brothers bought 30-40 state-owned feed companies in about a year, turning them into mixed-ownership enterprises. It was also this year that on the basis of Hope Feed Company, Hope Group was successfully established.

In 1995, the four Liu brothers went to separate families, Liu Yongyan established the Mainland Hope Company, Liu Yongxing founded the Oriental Hope Company, Liu Yongmei established the West China Hope Company, and Liu Yonghao established the Southern Hope Company, which is the predecessor of today's "New Hope Group".

After the separation, unlike other brothers who stayed away from the capital market, Liu Yonghao grasped both industry and capital. Among them, New Hope was successfully listed in 1998, becoming the first listed company of a private enterprise in the mainland, and Liu Yonghao's family has also won the title of China's richest man several times.

Today, Liu Yonghao is over seventy years old, and after more than 40 years of ups and downs in the business world, the business empire he has established is very large. According to the official website, New Hope Group has the world's largest feed production capacity, China's largest poultry processing capacity, and is one of China's largest integrated suppliers of meat, eggs and milk.

In the financial field, Liu Yonghao also showed his strength, not only initiated the establishment of Minsheng Bank, participated in Minsheng Life Insurance, and was involved in banks, insurance, trusts, funds, financial companies, etc., but also sat on 6 listed companies such as New Hope, Xingyuan Environment, New Dairy and Huarong Chemical.

He stressed several times this year that New Hope will not fall, lie down, or be anxious, and New Hope will live to be 120 years old.

But navigating cycles and living longer in a changing environment requires transformational pains. Especially today, when all industries are under a lot of pressure, it is a test of the responsiveness of the big ship of New Hope and the wisdom of Liu Yonghao, the head of the family.