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Shuanghui Development once again handed in a report card with both revenue and net profit falling. In the first half of 2024, Shuanghui Development's operating income and attributable net profit both fell year-on-year. In the opinion of experts, the decline in sales of packaged meat products and fresh pork products and the sluggish market are the factors that led to the continued decline in Shuanghui Development's performance. At a time when the market demand for meat products is sluggish, Shuanghui Development has fallen into a growth bottleneck period and needs to try to explore new markets to find the next step of new business growth for the company.

Continuous decline

On August 14, Shuanghui Development's share price fell sharply, closing at 22.41 yuan per share, a daily drop of 4.8%. On the same day, the stock price hit its lowest point of 22.4 yuan per share this year.

On the news front, the previous evening, Shuanghui Development's 2024 semi-annual report showed that in the first half of 2024, the company achieved operating income of 27.593 billion yuan, a year-on-year decrease of 9.31%; net profit attributable to shareholders of listed companies was 2.296 billion yuan, a year-on-year decrease of 19.05%. It is worth noting that this is the third consecutive reporting period in which Shuanghui Development's revenue and net profit have both declined.

Regarding the reasons for the changes in performance, Shuanghui Development stated in its financial report, "In the first half of 2024, the company's total export volume of meat products was 1.51 million tons, a year-on-year decrease of 7.74%; affected by the decline in sales of packaged meat products and fresh pork products, as well as low prices of poultry products, the company achieved total operating revenue of 27.7 billion yuan in this period, a year-on-year decrease of 9.34%; the main reason for the decline in total profit in this period was the sluggish market prices of fresh pork products and poultry products, and the decline in product gross profit; the reason why the decline in net profit attributable to shareholders of listed companies was greater than the decline in total profit was mainly because the businesses that affected the decline in profits were fresh products, poultry and other corporate income tax exempt businesses."

At the 2024 semi-annual performance exchange meeting, Shuanghui Development stated that the main reasons for the year-on-year decline in the company's meat export sales in the second quarter of 2024 were, first, sluggish consumption and a decline in meat product sales; second, fierce competition in the slaughtering industry, coupled with rising pig prices that suppressed pork consumption, and last year, the company seized the low pig price period to reserve, and the export sales of fresh products fell year-on-year. The main reasons for the year-on-year decline in the company's profits in the second quarter were, first, the poultry industry in other divisions was affected by the year-on-year decline in live chicken prices, and the operating losses increased year-on-year; second, the decline in meat product sales affected the year-on-year decrease in profits.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, said that the main reasons for Shuanghui's continued decline in performance are intensified market competition, rising costs and changes in consumer demand. Market competition has squeezed Shuanghui's market share, and the low price of meat products has further weakened its profitability. In addition, changes in consumer demand have also affected Shuanghui's performance. Consumers are more concerned about food safety and less sensitive to prices. In the current economic development environment, consumers' purchasing power and consumption habits have changed, and the demand for fresh food and meat products has decreased.

In order to boost shareholders' confidence, on the day of the results announcement, Shuanghui also released its 2024 semi-annual distribution plan, planning to distribute cash dividends at a ratio of 6.6 yuan (tax included) per 10 shares. The total dividend is expected to reach 2.287 billion yuan.

Shuanghui's dividend amount accounted for 99.58% of its net profit in the first half of the year, and the dividend rate was 2.42%, ranking first in the Shenwan Food Industry. Industry insiders pointed out that Shuanghui's high dividend showed its good profitability and awareness of returning to shareholders.

Main business stalls

Shuanghui Development's main business is slaughtering and meat processing, and its two main products are fresh products and packaged meat products. According to the financial report data, the sales volume of fresh pork products in the first half of the year was 619,400 tons, a year-on-year decrease of 14.23%; the sales volume of packaged meat products was 704,400 tons, a year-on-year decrease of 9.5%. The decline in sales and revenue of the two important businesses of fresh products and meat products is considered one of the reasons for Shuanghui Development's poor performance.

Specifically, the operating income of the fresh food business decreased by 16.1% year-on-year in the first half of the year, mainly due to the fierce market competition since the beginning of this year and the high base of production and sales of frozen food reserves in the same period last year; operating profit decreased by 43.8% year-on-year, mainly due to the sluggish prices of frozen food and a significant decline in profits in the first quarter. In the second quarter, with the increase in pork prices, the profitability of the fresh food business improved, turning from decline to growth.

The operating income of the meat products business decreased by 9.6% year-on-year in the first half of the year, which was a larger decline than that in the first quarter. The main reason was the sluggish market demand and the significant decline in sales in offline traditional channels. In terms of profitability, thanks to cost control and adjustments in product structure, the average profit per ton and overall profit of meat products in the first half of the year reached a record high. In addition, the poultry industry in other business segments suffered a year-on-year loss due to a large drop in the price of live chickens; the pig farming industry suffered a year-on-year decline in the scale of slaughter due to increased rectification efforts, and the loss was greatly reduced year-on-year.

Zhan Junhao, a well-known strategic positioning expert and founder of Fujian Huace Brand Positioning Consulting, believes that from the perspective of brand competition, Shuanghui Development has encountered the dual challenges of brand aging and market competition. Brand aging is reflected in the fact that its traditional brand image has failed to keep up with the rapid changes in consumer preferences, while market competition lies in the fact that emerging brands have rapidly risen with innovative products and precision marketing, which has put pressure on Shuanghui Development's market share. The reason for the sluggish demand in the meat market is not limited to changes in consumer purchasing power, but more deeply due to changes in consumer demand structure, but Shuanghui Development has failed to fully adapt to the development trend of market diversification and segmentation.

Bai Wenxi believes that for Shuanghui, which is currently stuck in a performance bottleneck, the next development direction can be considered from the following aspects, including optimizing product structure and developing new product lines; introducing advanced technology and equipment, improving production efficiency, reducing costs, and thus improving profitability; strengthening brand building and marketing efforts, and increasing brand awareness and reputation; trying to explore new markets, expand sales channels, and increase market share.

Shuanghui Development said that in the first half of 2024, the company's profit per ton of meat products will be around 4,700 yuan, a significant increase year-on-year, mainly due to the increase in profits from the reduction in raw material and packaging costs; it is expected that the company's profit per ton of meat products will decrease in the second half of 2024 compared with the first half of the year, but it is still expected to maintain a good level, and the profit per ton of meat products for the whole year will be at a historical high. In addition, the company will focus on the following tasks in the second half of 2024: adhere to the "two adjustments and one control" for meat products, expand the scale to ensure profitability; do a good job in the "six combinations" of fresh products, expand the scale of fresh sales; do a good job in the operation of the breeding industry, reduce costs, improve efficiency, and increase benefits, and promote the industrialization and diversification of the company's meat; accelerate the development of catering and group catering business to contribute new growth to the company; upgrade marketing management, strengthen brand building, etc.

Regarding the above questions, a Beijing Business Daily reporter sent an interview email to the Shuanghui Development Board of Directors, but no reply was received as of press time.

Beijing Business Daily reporter Zhang Han