On 23 June, 2016, New Hope Liuhe Co., Ltd.
(New Hope Liuhe) announced that it is to acquire a 70% share in Yangling Besun
Agricultural Industry Group Co., Ltd. (Besun Agricultural) by means of cash and
the issue of shares, a total transaction value of USD92.64 million (RMB616
million). Following the acquisition, Besun Agricultural will become one of New
Hope Liuhe's subsidiaries.
Source: Baidu
Besun Agricultural is a domestic pig farming enterprise which output over 200,000 pigs for slaughter in 2015.
However, the performance of the company has declined in recent years. According
to CCM's research, in 2015 its operating profit fell by 70.90% YoY to -USD1.70
million (-RMB11.33 million) and total profit was down by 121% YoY to
-USD252,647 (-RMB1.68 million).
Notably, the company receives relatively large
government subsidies (which are exclusively for enterprises in the agricultural
and livestock production industries). For instance, despite a YoY fall of 7.74%
in 2015, subsidies that year still reached USD1.33 million (RMB8.82 million), a
main contributor to the company's profits.
This year, thanks to the upward
trend in the live pig market, the company's performance has improved, with Q1
net profit reaching USD5.28 million (RMB35.14 million).
So far, New Hope Liuhe's pig farming
business has been mainly concentrated in Hebei, Sichuan and Shandong provinces.
The company expects to expand its business into Northwest China through the
acquisition of Besun Agricultural (located in Shaanxi Province).
New Hope Liuhe has been energized by increasing revenue. As one of the largest
producers of feed in China, the company's full-year 2015 net profit reached
USD445.14 million (RMB2.96 billion), up 13.24% YoY. Of this, its feed business
was the largest contributor with a revenue of USD6.27 billion – RMB41.69
billion (58.39% of the company’s total) and sales totalling 14.49 million
tonnes.
In recent years, New Hope Liuhe has vigorously broadened the scope of its
business to include poultry and pig farming. Full-year results for 2015 showed
that the company achieved revenue of USD352.20 million (RMB2.34 billion)
from livestock breeding, 3.28% of the company's total (vs. 2.41% in 2014). Its
pig farming business in particular showed significant growth:
-
Sales volume: 872,800 heads (including
boars, piglets and pigs available for slaughter), up 52.4% YoY
-
Gross profit: USD25.18 million (RMB167.45
million), up 36%+ YoY
-
Sows on farm: 11 million (as of the end of
2015)
This year, the company is furthering its investment in pig farming. On 1 June,
2016, it announced its plan to inject USD891.18 million (RMB5.93 billion) into
hog breeding projects (10 million heads):
-
To build 11 swine clusters (where feed
mills, pig farms, pork processing enterprises and plants dealing with
pig manure are all included), total annual output projected to be 4.91
million pigs for slaughter (a total investment of USD836.44 million – RMB5.56
billion)
-
To set up 9 enterprises engaged in live pig
farming in regions like Shandong and Sichuan provinces (a total investment of
USD35.19 million – RMB234 million)
-
To expand and rent pig farms as well as
equip them with supporting facilities (a total investment of USD19.51 million –
RMB129.72 million)
New Hope Liuhe's financial
performance, 2013-2015
Source: New Hope Liuhe Co., Ltd.
New Hope Liuhe's business structure by
revenue, 2015
Source: New Hope Liuhe Co., Ltd.
Besides the growth in profit brought by the
rising price of pork, New Hope Liuhe's large investment in pig farming has come
about as a result of other feed producers' expanding into the pig farming
industry in order to extend supply chains. At present, most of the new players
in the pig farming industry are large-scale feed enterprises. For instance,
-
In March 2016, Da Bei Nong Group signed pig
farm construction agreements in Heilongjiang and Jilin provinces as well as in
Xinjiang Uygur Autonomous Region, with total output of these farms expected to
reach 4.1 million
-
On 23 June, Shenzhen Jinxinnong Feed Co.,
Ltd. announced plans to reach an output of 3 million live pigs this year.
The expansion of feed producers into the pig farming business is predicted to
become more common in the near future, which will not only guarantee the demand
for feed from those companies, but will also lower pig breeding costs, boosting
companies' profits.
In the meantime, the impact of profit cycles in the
livestock industry should also be reduced. Given that China is gradually
eliminating small farms from the market, feed producers' large-scale farming
projects will be favorable towards national macro-regulation and somewhat
negate the negative impact of the "economic circle of pigs *".
* Economic circle of pigs: the periodic phenomena where the price of pork and
the number of live pigs on farm fluctuate alternately.
This article comes from Amino Acids China E-News 1607, CCM
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Tag: feed pig