Morningstar

Morningstar, Inc.

Equity Bottom-Up

<p>WH Group’s planned merger of wholly owned subsidiary Shuanghui Group with its 73.25% owned China-listed subsidiary Shuanghui Development, is meant to simplify the group’s holding structure by removing one layer. Financially, there is limited impact to WH Group and our cash flow projection, and we retain our fair value estimate of HKD 8.10. However, we believe the move could lead to a one-off revaluation gain for WH Group as the merger revalues its underlying holdings of Shuanghui Development. We…</p>

<p>Narrow-moat rated WH Group jumped more than 11% following news of a trade truce between the U.S. and China, and we think the movement mainly reflects reduced risk of additional import tariffs on U.S. pork by China rather than any tangible change to the company's fundamentals. With hog futures prices already recovering in the fourth quarter on anticipation of a rebound in exports of pork to China, this trade truce has little impact on our earnings and cash flows projections on WH Group…</p>

Dr. Andrew Stotz, CFA

A. Stotz Investment Research

<ul>
<li>Strong sales momentum, low core profit valuation, and low price-to sales relative to its sector</li>
<li>As the largest pork producer by capacity in the world, WHG is well positioned to take advantage of steadily growing demand per capita for protein foods in China, the biggest importer of pork in the world</li>
<li>The company is continuing its major cost-cutting program, which should further boost efficiency and profit margins</li>
<li>WHG trades below Asian Consumer Staples at 16CE* 1.8x PB and offers better ROE</li>
<li>Risk…</li>
</ul>

Hong Kong

WH Group Limited operates as a holdings company. The Company, through its subsidiaries, provides meat processing services, supplies chilled meat, meat products, and other related products.