China’s Meat Giant WH Group Jumps on HK$15 Billion Buyback Plan

(Bloomberg) -- WH Group Ltd. shares surged by the most in more than a year after the world’s biggest pork company said it plans to repurchase as much as HK$15 billion ($1.9 billion) worth of stock.

The company proposes to buy back and cancel about 13% of its issued shares at HK$7.80 each, it said in a filing to the Hong Kong stock exchange Sunday. The price represents a premium of 17.3% over the June 1 closing price of HK$6.65.

WH Group shares rose as much as 11% to HK$7.54 in Hong Kong as trading resumed on Monday. That’s the biggest intraday gain since March 2020.

The buyback plan comes as shares of China’s biggest hog companies have been on a retreat since February amid concern that slumping pork prices and higher feed costs could squeeze margins. Hog prices have fallen as China’s massive herd recovers from African swine fever, while feed ingredients like corn and soybeans have rallied on robust Chinese demand and tight global supplies.

Falling Chinese pork prices would reduce WH Group’s costs in purchasing local hogs for processing but could cut margins on imports.

“The share buyback is a positive move from the company to support its stock price and return retaining profit to shareholders,” Jefferies Group analysts including Kerith Chen said in a note. The cancellation of shares bought back may increase earnings per share by 15%, or about 9-10% in the near term, the analysts added.

WH Group said in March that it plans to increase meat imports this year. While Chinese pork prices will ease in the second half as supply expands, they’ll remain significantly higher than overseas, it said. It also expected to benefit from an increase in Chinese consumption and a recovery in local hog herds following the 2018-19 swine fever outbreak.

The company owns U.S.-based Smithfield Foods Inc., the largest pork producer in the world. Its Chinese operations contributed 66% to the group’s profit last year, while the U.S. made up 24%.

“This massive proposed share buyback is intended to enhance shareholders’ value, rather than privatization of the company,” said Citigroup Inc. analysts Xiaopo Wei and Vincent Yang. “Fundamentally, we anticipate its U.S. business to sequentially recover quarter-on-quarter, and its China business to continue with steady growth.”

The buyback will be funded partially by internal resources and largely by a committed facility. WH Group said it wants to take advantage of favorable borrowing costs available in the market and optimize the capital structure of the company, according to the filing.

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