Equity Analyst

Steve Zhou, CFA

Equity Bottom-Up

<ul>
<li>According to public news yesterday, <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> plans to list its US pork business Smithfield Foods, the largest US pork producer, back in the US again. </li>
<li>WH Group currently trades at 5x 2024E PE, assuming earnings return to the 2022 level in 2024E.  Since 2016, the company has had an average PE of 11x. </li>
<li>The stock is a buy with a fairly strong catalyst in the potential US listing of the Smithfield Foods business, while downside is limited. </li>
</ul>


According to public news yesterday, WH Group (288 HK) plans to list its US pork business Smithfield Foods, the largest US pork producer, back in the US again. 
WH Group currently trades at 5x 2024E PE, assuming earnings return to the 2022 level in 2024E.  Since 2016, the company has had an average PE of 11x. 
The stock is a buy with a fairly strong catalyst in the potential US listing of the Smithfield Foods business, while downside is limited. 


WH Group (288 HK):  Potential US Listing Of Smithfield Foods Could Be A Catalyst

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> is two businesses - a US pork processor and a Chinese one - and both businesses are suffering lower margins than they'd like.</li>
<li>But they are doing better than and are cheaper than peers. And still the stock falls. Today, the stock price hit a 6-year low on dramatic underperformance of peers.</li>
<li>The question is what the proper discount would be for people who question its governance credentials. It's a really big discount now.</li>
</ul>



WH Group (288 HK) is two businesses - a US pork processor and a Chinese one - and both businesses are suffering lower margins than they'd like.
But they are doing better than and are cheaper than peers. And still the stock falls. Today, the stock price hit a 6-year low on dramatic underperformance of peers.
The question is what the proper discount would be for people who question its governance credentials. It's a really big discount now.


WH Group (288 HK) - Now Cheapest in Yonks Outright and Vs Peers

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/cp-pokphand-co-ltd" target="_blank" data-smartkarma-citation="entities:10135:1" rel="noopener">Cp Pokphand (43 HK)</a> (CPP) is a leading agri-food conglomerate in China and Vietnam. After market close on Thursday, it announced a privatisation offer by way of a scheme of arrangement from <a href="https://www.smartkarma.com/entities/charoen-pokphand-foods-public-company-limited" target="_blank" data-smartkarma-citation="entities:16131:1" rel="noopener">CP FOODS (CPF TB)</a>, the largest shareholder (49.74% of the outstanding shares). The offeror will offer HK$1.15 in cash for each scheme share. The bid represents a premium of 19.79% over the closing price of HK$0.96 per share on the last trading date (24 September prior to the trading halt). For good measure, CPP also released a statement outlining a profit warning. CPP noted that the net profit would decline -75% YoY in 8M21, which marks a deterioration to the net profit decline of -50% YoY in 1H21. The profit warning was attributed mainly to a poor performance in China caused by lower poultry and swine prices. CPP notes that poultry and swine prices in China and swine prices in Vietnam will have fallen further in September. <div class="content-highlight">The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 5,958.8 million shares or 24.75% of shares outstanding, the 10% blocking stake is 595.9 million shares or 2.48% of shares outstanding. No shareholder holds a blocking stake. Overall, we think the offer price is attractive and that the privatisation bid will be successful. </div>

Cp Pokphand (43 HK) (CPP) is a leading agri-food conglomerate in China and Vietnam. After market close on Thursday, it announced a privatisation offer by way of a scheme of arrangement from CP FOODS (CPF TB), the largest shareholder (49.74% of the outstanding shares). The offeror will offer HK$1.15 in cash for each scheme share. The bid represents a premium of 19.79% over the closing price of HK$0.96 per share on the last trading date (24 September prior to the trading halt). For good measure, CPP also released a statement outlining a profit warning. CPP noted that the net profit would decline -75% YoY in 8M21, which marks a deterioration to the net profit decline of -50% YoY in 1H21. The profit warning was attributed mainly to a poor performance in China caused by lower poultry and swine prices. CPP notes that poultry and swine prices in China and swine prices in Vietnam will have fallen further in September. The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 5,958.8 million shares or 24.75% of shares outstanding, the 10% blocking stake is 595.9 million shares or 2.48% of shares outstanding. No shareholder holds a blocking stake. Overall, we think the offer price is attractive and that the privatisation bid will be successful. 

C.P. Pokphand’s Privatisation Bid from CPF

The shares of <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> to be returned to shareholders after the Buyback Offer have been returned to shareholders as of this morning. Some appeared to have sold yesterday, some today, and some may not "get notice" of the return until tonight, which means they would sell tomorrow or later. Now we look ahead. Based on a pure price-vs-peers basis, the price today is about 3% below where it was compared to a mix of Chinese and global peers as of the day before the announcement. However, that does not include the 15% accretion to EPS from the buyback. That puts the stock a fair bit cheaper than its peer basket since the announcement 3+ months ago. And it has ALWAYS traded cheap on governance concerns (and one reason why showed up last month in a public spat between the spurned first son and the chairman, discussed in <a href="https://www.smartkarma.com/insights/wh-group-stock-plummets-as-ousted-son-drags-pigs-into-the-mud" target="_blank" data-smartkarma-citation="insights:56282" rel="noopener">WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud</a>. The question investors should ask themselves is.... if the family were ousted, would that be good for the share price? If the answer is yes, then the exposure here probably has some convexity given the shares trade at a multi-year low to Peers on an accretion-adjusted basis.

The shares of WH Group (288 HK) to be returned to shareholders after the Buyback Offer have been returned to shareholders as of this morning. Some appeared to have sold yesterday, some today, and some may not "get notice" of the return until tonight, which means they would sell tomorrow or later. Now we look ahead. Based on a pure price-vs-peers basis, the price today is about 3% below where it was compared to a mix of Chinese and global peers as of the day before the announcement. However, that does not include the 15% accretion to EPS from the buyback. That puts the stock a fair bit cheaper than its peer basket since the announcement 3+ months ago. And it has ALWAYS traded cheap on governance concerns (and one reason why showed up last month in a public spat between the spurned first son and the chairman, discussed in WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud. The question investors should ask themselves is.... if the family were ousted, would that be good for the share price? If the answer is yes, then the exposure here probably has some convexity given the shares trade at a multi-year low to Peers on an accretion-adjusted basis.

Talk about timing....  There is a quote, often attributed to George Bernard Shaw, which says...<blockquote>“Never wrestle with pigs. You both get dirty and the pig likes it.”</blockquote>An <a href="https://m.21jingji.com/article/20210818/herald/4a9608d9f5f5c7989d30c32968022298.html" target="_blank" rel="noopener">article</a> out this morning in 21st Century Business Herald offers a description of an "article" in an outlet called New Meat Industry (新肉业) which was titled "Wan Hongjian: Father and Bandung in My Eyes" ("万洪建：我眼中的父亲和万隆") ['Bandung' is <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> Chairman Wan Long].WH Group shares are down 9.8% in heavy trading volume at the lunch break. Major onshore subsidiary Henan Shuanghui is down 6% in lower volume.Wan Hongjian, of course, is the eldest son of Chairman Wan Long. Wan Hongjian was proposed as Executive Director for the June AGM in March of 2018, appointed as an executive director of WH Group in June 2018, and two months later was named deputy chairman. His history as of March 2018 was as follows:<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/496/original/Screenshot+2021-08-18+at+11.13.20+AM.png?1629256485" class="editor-image img-responsive" data-smartkarma-image-id="224496"></figure></section>It appeared that the eldest son, the "Prince Lord" as he was described in the local onshore media at times, was being groomed to take over. Wan Hongjian was, however, unceremoniously stripped of his roles as Executive Director, Deputy Chairman, and Vice President exactly two months ago on 17 June 2021 with WH Group stating in its <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0617/2021061700420.pdf" target="_blank" rel="noopener">release</a>, "The reason for such removal is that the Company is of the view that Mr. Wan is unable to fulfil his duties of skill, care and diligence as a Director due to his recent misconduct of aggressive behaviors against the Company’s properties." Wan Hongjian recounted in a newspaper interview (reference link <a href="https://www.foodprocessing.com/industrynews/2021/ceo-of-smithfield-parent-steps-down/" target="_blank" rel="noopener">here</a>) after departing how he had once punched a door and banged his head on a cabinet when told to leave his father’s office. Other articles suggest that he had been pinned to the floor by his father's bodyguards with his bloodied face ending up on social media, this after "disagreements over managerial choice". Other articles (one <a href="https://www.feedstrategy.com/business-markets/wh-group-removes-executive-director-over-embezzlement/" target="_blank" rel="noopener">here</a>) defined the 'aggressive behaviors' as "embezzlement" but the company has been quiet. From a variety of articles, it appears as if there were long-standing disagreements between father and son. A somewhat strange <a href="https://www.yicaiglobal.com/news/exclusive-wh-group-ex-vp-wan-hongjian-talks-about-the-bust-up-with-his-father-smithfield-takeover--" target="_blank" rel="noopener">article</a> showed up last week in Yicai Global which talked about the disagreements and Wan Hongjian's "bust up" with his father, but the article here too is one-sided, and odd - it deserves a read.  Of import in this story, Wan Long - 50+ years in the industry - and heretofore Chairman and CEO of WH Group, at 81yrs of age, last week stepped down as CEO, handing off the reins to longtime CFO Guo Lijun. At the same time, the second sone Wan Hongwei was promoted to Executive Director and Vice Chairman of the Board of Directors. The "excuse" given was that it was to comply with SFC rules/guidance that the roles of Chairman and CEO should be separate for good governance. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/509/original/Screenshot+2021-08-18+at+11.36.52+AM.png?1629257931" class="editor-image img-responsive" data-smartkarma-image-id="224509"></figure></section><div class="content-highlight">That appears to have triggered things.</div>But it is not his brother's ascension. To that, Wan Hongjian apparently said “我首先要恭喜弟弟，也会给他发一个祝福信息，同时提醒他以后在这个位置上的三个注意事项：不说话！不说话！不说话!” (which might translate to "I want to congratulate my younger brother first, and I will also send him a message of blessings and remind him of three important points in this position in the future: Don’t speak! Don’t speak! Don’t speak!").The "disagreement over managerial choice" is and apparently has been the choice to appoint Guo Lijun as CEO.<h3>The NEW Article</h3>There are a number of accusations levelled in the 21st Century Business Herald article - best to read the article oneself - among which the major ones are that<ul>
<li>Chairman Wan Long and then-CFO Guo Lijun conspired to have onshore subsidiary <a href="https://www.smartkarma.com/entities/henan-shuanghui-investment-development" target="_blank" data-smartkarma-citation="entities:20515:1" rel="noopener">Henan Shuanghui Investment &amp; Development (000895 CH)</a> (of which WH owns 70+%) buy 100,000 tons of imported pork (a six-parter" 六分体 is two shoulders, two hindquarters, two mid-sections) at an elevated price, against the advice of local management, after which the price of pork in China plummeted, leaving inventory losses on Henan Shuanghui. </li>
<li>Wan Hongjian also reiterates his original opposition to the 2013 purchase of Smithfield Foods by WH Group, which in earlier interviews he had stated was a bad decision because the US market was not growing and the Chinese market is growing (though the Five Year Plan proposed for Shuanghui is growth and Wan Hongjian calls the basis for that planning "ridiculous.")</li>
<li>Wan Hongjian appears to object vociferously to the choice of Guo Lijun as CEO. </li>
<li>There is the broad accusation that the original setup of WH Group involved illicit monetary transfers and that the purchase of Smithfield was designed to get money offshore.</li>
</ul>It appears that a copy of the article/letter/posting by Wan Hongjian on "New Meat Industry" is available in full on sina.com <a href="https://finance.sina.com.cn/chanjing/gsnews/2021-08-18/doc-ikqciyzm2080209.shtml" target="_blank" rel="noopener">here</a>. That letter is much more detailed and very clearly says "My conflict with Mr Bandung [his father] was triggered by the choice of CEO."As I hit the "publish" button, the company has just released a "<a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0818/2021081800225.pdf" target="_blank" rel="noopener">clarification</a>" which says<blockquote>
The board of directors (the “Board”) of WH Group Limited (the “Company”, together with its subsidiaries, the “Group”) has noted the recent decrease in the price and increase in trading volume of the shares of the Company, and has also noted certain media reports regarding allegations made by Mr. Wan Hongjian (a former director of the Company who was removed for misconduct) against the Group (the “Allegations”). 
The Board would like to clarify that the Allegations are untrue and misleading. 
Having made such enquiry with respect to the Company as is reasonable in the circumstances, the Company confirms that it is not aware of any reasons for these price and trading volume movements or of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). 
The Company reserves its right to take legal actions against Mr. Wan Hongjian and/or those responsible for the Allegations.
</blockquote>More below the fold.

Talk about timing....  There is a quote, often attributed to George Bernard Shaw, which says...“Never wrestle with pigs. You both get dirty and the pig likes it.”An article out this morning in 21st Century Business Herald offers a description of an "article" in an outlet called New Meat Industry (新肉业) which was titled "Wan Hongjian: Father and Bandung in My Eyes" ("万洪建：我眼中的父亲和万隆") ['Bandung' is WH Group (288 HK) Chairman Wan Long].WH Group shares are down 9.8% in heavy trading volume at the lunch break. Major onshore subsidiary Henan Shuanghui is down 6% in lower volume.Wan Hongjian, of course, is the eldest son of Chairman Wan Long. Wan Hongjian was proposed as Executive Director for the June AGM in March of 2018, appointed as an executive director of WH Group in June 2018, and two months later was named deputy chairman. His history as of March 2018 was as follows:It appeared that the eldest son, the "Prince Lord" as he was described in the local onshore media at times, was being groomed to take over. Wan Hongjian was, however, unceremoniously stripped of his roles as Executive Director, Deputy Chairman, and Vice President exactly two months ago on 17 June 2021 with WH Group stating in its release, "The reason for such removal is that the Company is of the view that Mr. Wan is unable to fulfil his duties of skill, care and diligence as a Director due to his recent misconduct of aggressive behaviors against the Company’s properties." Wan Hongjian recounted in a newspaper interview (reference link here) after departing how he had once punched a door and banged his head on a cabinet when told to leave his father’s office. Other articles suggest that he had been pinned to the floor by his father's bodyguards with his bloodied face ending up on social media, this after "disagreements over managerial choice". Other articles (one here) defined the 'aggressive behaviors' as "embezzlement" but the company has been quiet. From a variety of articles, it appears as if there were long-standing disagreements between father and son. A somewhat strange article showed up last week in Yicai Global which talked about the disagreements and Wan Hongjian's "bust up" with his father, but the article here too is one-sided, and odd - it deserves a read.  Of import in this story, Wan Long - 50+ years in the industry - and heretofore Chairman and CEO of WH Group, at 81yrs of age, last week stepped down as CEO, handing off the reins to longtime CFO Guo Lijun. At the same time, the second sone Wan Hongwei was promoted to Executive Director and Vice Chairman of the Board of Directors. The "excuse" given was that it was to comply with SFC rules/guidance that the roles of Chairman and CEO should be separate for good governance. That appears to have triggered things.But it is not his brother's ascension. To that, Wan Hongjian apparently said “我首先要恭喜弟弟，也会给他发一个祝福信息，同时提醒他以后在这个位置上的三个注意事项：不说话！不说话！不说话!” (which might translate to "I want to congratulate my younger brother first, and I will also send him a message of blessings and remind him of three important points in this position in the future: Don’t speak! Don’t speak! Don’t speak!").The "disagreement over managerial choice" is and apparently has been the choice to appoint Guo Lijun as CEO.The NEW ArticleThere are a number of accusations levelled in the 21st Century Business Herald article - best to read the article oneself - among which the major ones are that
Chairman Wan Long and then-CFO Guo Lijun conspired to have onshore subsidiary Henan Shuanghui Investment &amp; Development (000895 CH) (of which WH owns 70+%) buy 100,000 tons of imported pork (a six-parter" 六分体 is two shoulders, two hindquarters, two mid-sections) at an elevated price, against the advice of local management, after which the price of pork in China plummeted, leaving inventory losses on Henan Shuanghui. 
Wan Hongjian also reiterates his original opposition to the 2013 purchase of Smithfield Foods by WH Group, which in earlier interviews he had stated was a bad decision because the US market was not growing and the Chinese market is growing (though the Five Year Plan proposed for Shuanghui is growth and Wan Hongjian calls the basis for that planning "ridiculous.")
Wan Hongjian appears to object vociferously to the choice of Guo Lijun as CEO. 
There is the broad accusation that the original setup of WH Group involved illicit monetary transfers and that the purchase of Smithfield was designed to get money offshore.
It appears that a copy of the article/letter/posting by Wan Hongjian on "New Meat Industry" is available in full on sina.com here. That letter is much more detailed and very clearly says "My conflict with Mr Bandung [his father] was triggered by the choice of CEO."As I hit the "publish" button, the company has just released a "clarification" which says
The board of directors (the “Board”) of WH Group Limited (the “Company”, together with its subsidiaries, the “Group”) has noted the recent decrease in the price and increase in trading volume of the shares of the Company, and has also noted certain media reports regarding allegations made by Mr. Wan Hongjian (a former director of the Company who was removed for misconduct) against the Group (the “Allegations”). 
The Board would like to clarify that the Allegations are untrue and misleading. 
Having made such enquiry with respect to the Company as is reasonable in the circumstances, the Company confirms that it is not aware of any reasons for these price and trading volume movements or of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). 
The Company reserves its right to take legal actions against Mr. Wan Hongjian and/or those responsible for the Allegations.
More below the fold. 

WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud

China

Henan Shuanghui Investment & Development Co., Ltd. is an investment holding company.  Through its subsidiaries, the Company manufactures meat products and frozen food, provides processing and printing services, as well as operates in commercial trading.

Henan Shuanghui Investment & Development (000895 CH)

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52-week Range	0.00 - 0.00
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Henan Shuanghui Investment & Development (000895 CH)

WH Group (288 HK): Potential US Listing Of Smithfield Foods Could Be A Catalyst

WH Group (288 HK) plans to list its US pork business Smithfield Foods back in the US, offering a potential catalyst for the stock which trades at...

Steve Zhou, CFA

WH Group (288 HK) - Now Cheapest in Yonks Outright and Vs Peers

WH Group has always been cheap to its peer group. Now it is worse. Pork prices are underperforming feed prices, lowering margins worldwide. WH has...

Travis Lundy

C.P. Pokphand’s Privatisation Bid from CPF

CPP announced a privatisation offer from CPF at HK$1.15 cash for each scheme share. Overall, we think the offer price is attractive and that the...

Arun George

WH Group Post-Tender Outlook

Buyback Offer shares are returned. Now we look forward. Of course, we did before in assuming participation rates. The stock is cheap on accretion...

Travis Lundy

WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud

The Chairman's ousted son penned a nasty letter which smacks of personal jealousy and family intrigue but leads to a mess. Real details are lost in...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

WH Group (288 HK): Potential US Listing Of Smithfield Foods Could Be A Catalyst

​WH Group (288 HK) plans to list its US pork business Smithfield Foods back in the US, offering a potential catalyst for the stock which trades at...

Steve Zhou, CFA

WH Group (288 HK) - Now Cheapest in Yonks Outright and Vs Peers

WH Group has always been cheap to its peer group. Now it is worse. Pork prices are underperforming feed prices, lowering margins worldwide. WH has...

Travis Lundy

C.P. Pokphand’s Privatisation Bid from CPF

CPP announced a privatisation offer from CPF at HK$1.15 cash for each scheme share. Overall, we think the offer price is attractive and that the...

Arun George

WH Group Post-Tender Outlook

Buyback Offer shares are returned. Now we look forward. Of course, we did before in assuming participation rates. The stock is cheap on accretion...

Travis Lundy

WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud

The Chairman's ousted son penned a nasty letter which smacks of personal jealousy and family intrigue but leads to a mess. Real details are lost in...

Travis Lundy

WH Group (288 HK) plans to list its US pork business Smithfield Foods back in the US, offering a potential catalyst for the stock which trades at...