New Hope has a debt of 93.8 billion, can it win by "betting" on pigs and feed?

Bond Market Watch V

2024-05-15 20:29Posted on the official account of Shanxi Bond Market Watch

Is the inflection point of the pig cycle coming?

Author | Li Feilin

Source | Bond Market Watch

In the cold winter of the downward trend of the pig cycle, New Hope Liuhe Co., Ltd. (000876. SZ (hereinafter referred to as "New Hope") has not had a good time in the past three years.

On April 30, New Hope announced its business results for 2023 and the first quarter of 2024, and the data performance is still not satisfactory.

In 2023, the operating income will be 14.17 billion yuan, and the net profit attributable to the parent company will be 249 million yuan. After deducting the war investment income and other non-recurring gains and losses introduced in 2023, the net profit will only be -4.608 billion yuan, a year-on-year decrease of 416.05%.

The sluggish performance will continue into 2024, and New Hope will still lose money in the first quarter, with a net profit attributable to the parent company of -1.934 billion yuan, a year-on-year decrease of 14.75%.

As of the first quarter of this year, the total assets were 126.787 billion yuan, the total liabilities were 93.856 billion yuan, and the asset-liability ratio has reached 74.02%, a new high since its listing. To make matters worse, its monetary funds are no longer able to cover short-term borrowings.

In fact, since the entire pig industry has fallen into a loss spiral, many companies have faced similar financial pressures. Muyuan shares, known as the "first brother of pig raising" (002714. SZ), with a loss of 4.026 billion yuan in 2023 and a loss of 2.386 billion yuan in the first quarter, an increase of 98.56 603363% year-on-year. SH) and Tianbang Food (002124.SZ) have even entered the pre-restructuring stage.

In order to answer investors' questions, New Hope held a conference call with institutions and analysts on May 6. At the meeting, New Hope responded to investors' questions in detail and said that it will focus on the two main businesses of feed and pigs in the future. On May 7, the stock price began to recover after falling for 2 consecutive days. As of the close of trading on May 15, the stock price was 9.5 yuan per share, with a total market value of 43.2 billion yuan.

However, the inflection point of the downward trend of the pig cycle has not yet arrived, and New Hope continues to "gamble" on whether the pig and feed industry can be bitter?

01

The hog business lost 5.3 billion a year

In April, it achieved a monthly profit

According to the official website, New Hope is a member enterprise of New Hope Group focusing on the development of food and modern agriculture, and is one of the first batch of national key leading enterprises in China's agricultural industrialization, founded in 1998 by Liu Yonghao, the actual controller of New Hope Group, and listed on the Shenzhen Stock Exchange on March 11, 1998. In 2013, Liu Yonghao resigned as chairman of New Hope, and his 23-year-old daughter Liu Chang took over.

When it comes to New Hope, people's first impression is mostly that of "Brother Feed". However, its actual business has covered the whole industry chain of breeding, meat products and financial investment.

In 2013, under the leadership of Liu Chang, the new head of New Hope, New Hope embarked on the road of transformation into a large farmer and a food giant. In 2016, New Hope officially set foot in pig breeding from the feed industry, and nearly 10 million pigs were slaughtered in six years by the end of 2021.

Source: Canned Gallery

In 2019, affected by African swine fever, domestic pig prices skyrocketed, and New Hope's net profit exceeded 5 billion that year, setting the highest profit since the transformation. However, in 2021, affected by the downward trend of the pig cycle, under the premise of making a profit in the feed business, New Hope's net profit loss attributable to the parent company reached 9.591 billion, a year-on-year decrease of 293.98%, which was also its first loss since its listing.

At the end of 2022, New Hope, which has been losing money for two consecutive years, began to focus on "slimming down and gaining muscle", first transferring 18 pig farm projects to the joint-stock company Xingxin Agriculture and Animal Husbandry, and then introducing strategic investors and transferring controlling stakes in the white feather meat and poultry and food deep processing sectors at the end of 2023.

But the 2023 annual report is out, and New Hope's report card is still not so pretty. In addition to the profit of 1.46 billion yuan in the feed business, the profit of 200 million yuan in the food business, and the breakeven of the poultry business, the loss of the pig business is as high as 5.3 billion.

Talking about the reasons for the loss, New Hope said that the decline in pig prices has become the most important factor affecting the decline in the company's net profit. Although the cost of pig raising has decreased by nearly 1 yuan/kg compared with 2022, the average pig price in 2023 is low, especially in the second half of the year, the pig price has fallen by more than 30% compared with 2022.

In fact, the number of live pigs slaughtered by New Hope in 2023 will reach 17.68 million, an increase of 20.93% compared with 14.62 million in 2022, but due to low pig prices, revenue has declined by 4.89%.

In the first quarter of 2024, the loss of the pig business will be 1.79 billion, and the loss trend has not improved. New Hope explained that in the first quarter, the high-cost field lines were adjusted and optimized, and some field coil houses were also renovated, with a one-time investment and loss of nearly 400 million yuan. However, due to short-term investment, it will not be affected in May and beyond.

Relatively optimistic, in April, the market pig price rebounded to the level before October last year, the average sales price of New Hope commercial pigs was 15.13 yuan/kg, and the average sales price and sales revenue of some listed pig enterprises increased month-on-month, and New Hope also achieved an overall monthly profit.

02

3 years "smashed" under 70 billion expansion

In addition to the impact of the pig cycle, the situation that caused New Hope to continue to suffer huge losses is also related to the company's transformation and expansion in the past few years.

In 2019, pig prices remained high, and the profits of major pig companies soared, among which the net profit of Muyuan shares increased by 1075.37%, Zhengbang increased by 777.53% year-on-year, and Wen's shares achieved the best performance since listing, with a net profit of more than 13.9 billion yuan. New Hope's profit for the year also exceeded 5 billion, driven by high profits, New Hope expanded aggressively in pig breeding, through acquisitions and self-built expansion of plants. In the first half of 2020 alone, New Hope invested in the construction of 29 pig breeding projects, with a total investment of 14.75 billion yuan.

Data shows that in 2019, New Hope's capital expenditure reached more than 9 billion, and in 2020 and 2021, it exceeded 30 billion.

However, the rapid expansion has also brought huge debts to New Hope.

Since 2016, New Hope's total liabilities have increased year by year, and the asset-liability ratio has increased from 31.65% to 74.02% in the first quarter of this year.

From 2020 to 2023, New Hope's total liabilities will be 58.073 billion yuan, 86.255 billion yuan, 92.964 billion yuan and 93.68 billion yuan respectively, rising steadily. As of the first quarter of 2024, New Hope's total liabilities have reached 93.856 billion yuan.

Source: Canned Gallery

According to New Hope's financial report for the first quarter of 2024, its monetary funds can no longer cover the company's short-term borrowings. At the end of March 2024, New Hope's monetary funds were 10.937 billion yuan, short-term borrowings were 18.867 billion yuan, non-current liabilities due within one year were 8.647 billion yuan, and long-term borrowings were even as high as 26.465 billion yuan.

In addition, the current assets were 28.466 billion yuan, but the current liabilities were as high as 53.708 billion yuan, and the liquidity was under pressure.

In this regard, New Hope said that the debt ratio is high in the near future, but it is only a stage high, and the debt ratio will gradually decrease from many factors. In addition, the liability structure of banks is stable, from last year to this year, all banks have re-evaluated the credit of New Hope, major banks and joint-stock banks have remained stable, and some regional banks and joint-stock banks have increased their credit lines.

According to the analysis of analysts from Bond Digital (Beijing) Technology Co., Ltd. (hereinafter referred to as "Bond"), a third-party rating agency that serves buy-side investors, New Hope currently has a high debt ratio, ranking at the bottom of the industry, and its term structure is acceptable, but the overall debt protection is weak and the credit risk is average. However, the company's restricted assets account for a relatively low percentage, and other listed companies in the New Hope Group have no equity pledges, so there is room for refinancing.

03

Sell assets and introduce war investment

In fact, in order to resolve the debt pressure, New Hope began to recover blood through asset sales, the introduction of war investment, and private placement in 2022.

In 2022, New Hope transferred 18 pig farm projects in Sichuan and Chongqing to local state-owned assets, returning 2.243 billion yuan.

On April 20, 2023, New Hope announced that in order to help the company digest idle assets and reduce the company's debt ratio, 7 pig farms will be sold for 1.317 billion yuan.

Source: pixabay

It's just that with the continuous expansion of the loss of the pig business, for New Hope, the above blood is also a drop in the bucket.

On December 1, 2023, New Hope issued a private placement announcement, planning to raise 7.35 billion yuan for the biosecurity prevention and control of pig farms and digital intelligence upgrade projects, the acquisition of minority stakes in holding subsidiaries and the repayment of bank debts.

On December 15, 2023, New Hope announced that it planned to transfer 51% of the equity of its subsidiary Zhongxin Food to China Animal Husbandry Group. China Animal Husbandry Group will acquire the operating body of New Hope's poultry industry chain in cash, with a transaction price of about 2.7 billion yuan. After the completion of the transaction, China Animal Husbandry Group will become the controlling shareholder of Zhongxin Food.

In addition to the transfer of the poultry industry, New Hope also transferred the deep processing of food. On the same day, New Hope also announced that Beijing New Hope, a holding subsidiary of the company, signed an equity transfer agreement with Hainan Shengchen to transfer 67% of the equity of Deyang New Hope, the operating body of the company's food deep processing business, at a price of 1.5 billion yuan.

New Hope's introduction of war investment has indeed brought back a huge amount of money for it. According to the record of its investor relations activities on May 6, the income of the two transactions was 5.2 billion, which directly led to New Hope's net profit attributable to the parent company in 2023 turning positive.

In March this year, New Hope once again disclosed that the company will issue no more than 1 billion yuan of "non-financial enterprise debt financing instruments", and the use of the bonds is intended to be used to replace mature debt financing instruments and other interest-bearing debts and supplement liquidity.

In addition to returning funds to reduce debt, at the operational level, New Hope is also focusing on improving the cost of pig raising.

According to the data disclosed by New Hope, the cost of slaughtered fat pigs dropped from 17.4 yuan/kg in the first quarter of last year to 14.7 yuan/kg in April this year, a decrease of 2.7 yuan/kg, and is expected to drop to about 14.2-14.3 yuan/kg in December.

Source: Canned Gallery

New Hope pointed out that in the first quarter of 2024, in the pig industry, some high-cost areas or companies with poor conditions have been reduced to part of the production capacity. At present, the overall situation has turned to breakeven in April, and there is still room for rapid decline in the cost of gilt consolidation in the future.

When it comes to future planning, New Hope said that it will focus on the two core industries of feed and pigs in the future.

However, in recent years, pig overcapacity, pig prices continue to fall, pig prices have also entered a long downward cycle, even if pig enterprises work hard, the decline in breeding costs is still far less than the decline in pig prices. According to the data disclosed by the Ministry of Agriculture and Rural Affairs, from the perspective of breeding income, the average loss of pig breeding heads in 2023 is 76 yuan, which is also the first year since 2014 to calculate the annual loss of the general ledger.

According to the "Securities Times", the April pig sales briefing disclosed by A-share pig breeding enterprises recently showed that among the 11 pig enterprises, 10 pig prices rose month-on-month. Among them, ST Tianbang had the highest month-on-month increase, with 455,200 commercial pigs sold in April, sales revenue of 656 million yuan, and an average sales price of 16.91 yuan/kg (the average price of commercial fat pigs was 15.17 yuan/kg), with month-on-month changes of 11.28%, 8.48%, and 11.62% respectively.

Changjiang Securities Research Report believes that the inflection point of this round of pig cycle is brewing. In terms of future pig breeding profits, Wanlian Securities Research Report believes that pig production capacity will continue to decline, and it is expected that the contraction of pig supply is expected to run through the whole year of 2024. At the current point in time, with the arrival of peak consumption seasons such as the Dragon Boat Festival, pig prices are expected to rise quarter by quarter, and the profit of pig breeding is expected to increase quarter by quarter.

Under the impact of multiple factors such as the "pig cycle", New Hope is under huge operating pressure, but it would rather cut off the white feather meat and poultry and food processing industry, but also continue to fight with pigs, are you optimistic about the development of New Hope in the pig industry? Welcome to leave a message in the comment area to discuss.

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