CCM: New Hope Liuhe to acquire Besun Agricultural to expand pig farming business 07-27-2016

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

 



About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

 

For more information about CCM, please visit www.cnchemicals.com or get in touch with us directly by emailing econtact@cnchemicals.com or calling +86-20-37616606.

 

Tag: feed  pig 


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