news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

Ji Jingying, researcher at New Fortune magazine

On August 6, the national average price of live pigs hit a temporary high of 20.4 yuan/kg, much higher than 13 yuan/kg at the end of 2023. This means that the fourth bottoming out phase of this round of pig cycle since 2024 is coming to an end, and pig farming companies are crossing the break-even point and entering a new profit cycle. New Hope, the third largest pig farming company in China, is no exception. According to the semi-annual report forecast, its pig farming business has turned losses into profits in May, and the second quarter single-quarter profit is expected to be about 750 million yuan.

Against this backdrop, New Hope Group released 13 announcements on August 2, two of which stood out: first, it adjusted the planned increase in capital raised at the end of 2023, halving the total amount of capital raised and the amount of bank debt repayment; second, it stopped using the raised funds to acquire minority stakes in Shandong New Hope Liuhe Group Co., Ltd. and Xuwen Xinhao Agriculture and Animal Husbandry Co., Ltd., reducing expenditure by 1.5 billion yuan. This may indicate that the tight cash flow situation it faced at the time has been alleviated, and minority shareholders of subsidiaries are expected to share in the new round of growth dividends and no longer require New Hope Group to "buy back" its equity.

Previously, due to the longest downward phase of the pig cycle in history, New Hope Group suffered losses for three consecutive years from 2021 to 2023, with a total loss of 12.36 billion yuan, and its debt ratio rose to 74.03% in the first quarter of 2024. The net profit of its controlling shareholder, New Hope Group, also fell to a historical low, recording only 139 million yuan in 2023, far lower than the previous level of 5 billion to 8 billion yuan per year. Due to its reliance on large-scale financing to maintain stable cash flow, its asset-liability ratio rose to 68.73% in the first quarter of 2024.

In order to cope with the challenges of the cycle, New Hope Group has continuously reduced its stake in Huachuang Yunxin and transferred the voting rights of Xingyuan Environment since 2023. New Hope will divest the core assets of the cultivated food sector to New Hope Investment Group to focus on the main business of feed and breeding. The reduction and divestiture not only "reduces the burden" of the company, but also the New Hope Liuhe Food, New Hope Flavor Industry, and Fresh Life Cold Chain, which have begun to take shape, will have room for independent listing in the future.

According to the article "New Hope Group Changes Its Strategy to Survive the Headwinds" published in August by New Fortune magazine, the past integrated industry cultivation and extensive investment have provided New Hope Group with room for asset and capital maneuvering to counter the impact of cyclical fluctuations in the main business. Over the past 40 years, New Hope Group companies led by Liu Yonghao have continuously incubated new businesses using the stable cash flow created by the feed business. Through core entities such as New Hope, New Hope Group, New Hope Investment Group, Southern Hope Industrial, and Grassroots Knowledge, it has invested in more than 600 companies in sectors such as food and modern agriculture, dairy and fast-moving consumer goods, real estate and infrastructure, chemicals and resources, with annual revenue exceeding 280 billion yuan. Among its mature assets, New Dairy, New Hope Services, and Huarong Chemical have been listed one after another, while Liuhe Group and Sichuan Gas have been injected into listed companies through mergers and acquisitions to achieve securitization and release profits. In addition, New Hope Group has successively acquired equity in companies such as Kelun Pharmaceutical, Xingyuan Environment, Huachuang Yunxin, and Pegasus International, from which it has obtained financial investment income and dividends.

One of the major experiences of grain and agricultural giants such as Bunge, Cargill, and ADM over the past century is to build a full agricultural industry chain model from upstream seeds to downstream food to resolve the risks of fluctuations in the supply and demand cycle of agricultural products. Today, as one of China's largest agricultural and animal husbandry companies, whether New Hope can use the chips accumulated from past layouts to take advantage of the bottoming out of the pig cycle to get out of the headwind situation is worth paying attention to.