Liu Chang is looking for new hope
For all pig enterprises, the "pig cycle" is a game: lose and win, one thought of heaven and one thought of hell.
On January 9, New Hope talked about how the company is dealing with short-term debt repayment pressure and the source of cash inflow this year in the record of investor relations activities disclosed by New Hope. Combined with a series of measures such as New Hope's strategic adjustment and sale of the poultry sector, disposal of idle pig farms, and efficiency improvement and fee reduction at the company's headquarters level, Liu Chang, who took over the baton from his father Liu Yonghao, the "feed king" for ten years, ushered in the first "big test" since taking over New Hope after leading New Hope to a market value of 100 billion yuan, facing a debt of nearly 97 billion yuan and the bottom of the three-year pig cycle.
The step is big
In 2019 and 2020, New Hope made a profit of 5 billion yuan for two consecutive years, but from 2021 to the first three quarters of 2023, New Hope has accumulated a loss of 14.91 billion yuan. In addition to two consecutive years of losses, the amount of accumulated losses has exceeded the sum of profits in the four years from 2017 to 2020.
Speaking of which, the main reason for New Hope's continued huge losses is New Hope's pig business in recent years. Founded in 1998, and in March of the same year, New Hope registered in the capital market to start with the feed business, in February 2016, New Hope officially announced the transformation, announcing an investment of 8.8 billion yuan to complete the annual pig slaughter of 10 million in 3-5 years.
In the second half of 2018, the outbreak and spread of African swine fever led to a significant reduction in the industry's production capacity, a sharp expansion of the pork supply gap, and a sharp increase in pork prices. In the fourth quarter of 2019, the price of live pigs reached an unprecedented peak of about 40 yuan/kg, and basically remained at a high level of 30-40 yuan/kg throughout the following 2020.
The abundant breeding profits have stimulated large-scale capacity investment, coupled with the recovery of the level of non-plague prevention and control, the industry's production capacity has recovered rapidly and continued to grow. In the next two years, major farms generally expanded their production capacity, especially the production capacity of large-scale breeding enterprises surged. New Hope regards the pig breeding business as the "No. 1 project". At the 2019 annual performance briefing, Liu Chang bluntly said, "The current pig breeding is the most important."
Before 2019, New Hope's pig business revenue accounted for a small proportion of less than 5%. However, by 2020, this data has increased to 22.56%, becoming the second largest business in the entire enterprise revenue.
From 2019 to 2020, New Hope acquired nearly 20 companies. At the same time, in 2020, New Hope also threw out a fundraising plan of 4 billion yuan, of which 3.2 billion yuan was invested in pig breeding projects, and in 2021, the company issued 8.15 billion yuan of convertible bonds to invest in pig breeding projects and repay bank loans.
From 2016 to 2022, New Hope's construction in progress has also increased from 846 million yuan to 20.158 billion yuan. In 2022, New Hope's fixed assets will be as high as 35.683 billion yuan, and the total of the above two accounts will be as high as 55.841 billion yuan, which is 40% of the company's total assets. Most of these fixed assets are also used for the expansion of pig farming.
However, in recent years, under the situation of overcapacity of pigs and the continuous decline of pig prices, pig prices have also entered a long downward cycle, and the "side effects" of New Hope's large-scale and rapid expansion have begun to appear, and debt problems have surfaced. According to the latest financial report data, in the first three quarters of 2023, New Hope's monetary funds can no longer cover the company's short-term borrowings. At the end of September 2023, New Hope's monetary funds were 11.597 billion yuan, short-term borrowings were 16.456 billion yuan, non-current liabilities due within one year were 15.098 billion yuan, and long-term borrowings were even as high as 25.438 billion yuan. The total debt is as high as 97 billion yuan, and the debt ratio is approaching a historical high of 72%.
Shen Meng, director of Xiangsong Capital, said that it is currently at the bottom of the pig cycle, but this round of the pig cycle has superimposed more complex factors, resulting in no signs of recovery after bottoming out, bringing more uncertain risks to pig enterprises.
Slam on the brakes
There is no doubt that the pig industry is the "main culprit" that has dragged down New Hope's overall performance.
Zhang Minggui, who was named by Liu Yonghao and Liu Chang as the commander of the "No. 1 Project" of pig raising, said frankly in the face of investors' questions about the previous radical expansion at the performance briefing in June 2023 that at that time, the dilution of management ability after the rapid expansion of the scale was indeed underestimated, and if it could really go back to the past, it would be more stable in the pace of expansion.
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. It's just that this bit of blood is also a drop in the bucket for New Hope's debt.
To make matters worse, the current situation of oversupply of hogs in the short term has not yet seen signs of a cycle reversal. According to data from China Pig Network, as of December 1, 2023, the national three-yuan pig price was reported at 14.67 yuan/kg, a slight increase of 1.1% from the previous day and a year-on-year decrease of 36.85%. According to Wind data, as of the end of October of that year, the number of fertile sows was 42.1 million, which was still at a high level. Since the production cycle of breeding sows-piglets-commercial pigs takes about 10-11 months, the industry still has a lot of production capacity to be reduced in the short term.
Also in November 2023, the complete cost of New Hope's slaughtered fat pigs in the operation line is about 15.6 yuan/kg. The average sales price of commercial pigs in the month was 13.95 yuan/kg, and the cost was inverted.
Liu Chang, chairman of New Hope, 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, on the one hand, New Hope will clear some pig farm resources and revitalize assets, and 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.
On December 15, 2023, New Hope announced that the company and its wholly-owned subsidiaries Shandong Liuhe and Beijing New Hope will respectively transfer 20%, 2% and 29% of the equity of their subsidiaries Zhongxin Food to China Animal Husbandry Group, which will obtain the company's poultry industry chain operation body in cash, and the total transaction price of 51% equity of Zhongxin Food is about 2.7 billion yuan.
On the same day, New Hope announced that the company's holding subsidiary, Beijing New Hope, signed an equity transfer agreement with Hainan Shengchen, intending to transfer 67% of the equity of Deyang New Hope, the operating entity of the company's food deep processing business, at a price of 1.5 billion yuan.
On November 30, New Hope had planned to issue A-shares to no more than 35 specific targets, with the number of no more than 1.364 billion shares, and the total amount of funds raised would not exceed 7.35 billion yuan. Among them, 3.645 billion yuan will be used for pig farms to turn to digital intelligence, 1.5 billion yuan will be used to acquire holding subsidiaries, and the remaining 2.204 billion yuan will be used to repay bank debts.
For pig enterprises, the impact of the pig cycle is the cyclical nature of performance. In the upward cycle, everyone has entered the game, and the money is full, while in the downward cycle, the confiscated pig enterprises often lose heavy losses or even lose their money.
In addition to waiting for pig prices to rise, New Hope is also "improving its internal management capabilities through various measures". In 2023, 50 projects are planned to be surrendered, and 41 projects have been completed in the first three quarters. According to a report from "City Boundary", many of New Hope's business lines will shrink in 2023, according to a former employee, there is a safety and environmental protection department, which directly cut off about two-thirds of the people, and some departments are directly dissolved. In terms of the total number of employees, from 2020 to 2022, the total number of employees decreased by 18,665.
The "Hope" of New Hope
According to the latest stock price estimates, the equity of Liu Yonghao's family has fallen by nearly 70 billion yuan in the three years of the pig cycle. But for the former richest man in China, although it hurts, it does not hurt the muscles and bones. 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 exists. The entire breeding industry has been hovering at the bottom for nearly three years, and almost all farmers are losing money.
In the cyclical industry, the competition is never about the ability of who can be more fortunate to step on the middle of the stroke, but the ability to look at the company's scale, resource reserves and management mode. Although New Hope is still in the red as a whole, the good news is that the single-season loss value in the past few quarters has been gradually reduced by reducing the cost of farming.
As for whether to raise pigs, Liu Yonghao's conclusion is that pig raising is still the core business. In 2023, New Hope established a pig breeding BG (business group), aiming to focus more on intensive pig farming business and reduce breeding costs. During the downturn of the entire industry, adjusting the model and enhancing its own superiority is what New Hope needs to do the most, and the rest is to leave it to time and wait for the next bull market or the industry to return to normal.
At that time, New Hope may be able to rely on its own status and cost advantages to stand out in the fiercely competitive market and become a veritable pig king.