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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

The operating performance of Shuanghui Development (000895.SZ), the country's largest meat supplier, continued to decline.

On the evening of August 13, Shuanghui Development disclosed its 2024 semi-annual report. In the first half of the year, the company's operating income was 27.672 billion yuan, a year-on-year decrease of more than 9%; the net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") was close to 2.3 billion yuan, a year-on-year decrease of nearly 20%.

In 2023, Shuanghui Development's operating income and net profit both declined year-on-year, and both continued to decline in the first half of this year.

Shuanghui Development mainly relies on the distribution model, which accounts for nearly 80% of its revenue. At the end of the first half of this year, the company had 17,305 distributors, a net decrease of 455 from the beginning of the year. The company's actively developed direct sales model had a gross profit margin of only 2.14% in the first half of this year.

In recent years, Shuanghui Development's annual net profit has been 5 billion yuan. In the first half of this year, the company's financial expenses were 82 million yuan, turning from negative to positive after two years, and it was the highest level in history, which was surprising.

Where did Shuanghui Development's money go? In the past four years, the company has basically distributed all its profits. In the middle of this year, the company still plans to distribute a large dividend, with a dividend rate of up to 99.58%.

Direct sales gross profit margin is only 2.14%

Shuanghui Development's revenue and net profit continued to decline.

According to the semi-annual report, in the first half of this year, Shuanghui Development achieved operating income of 27.672 billion yuan, a year-on-year decrease of 9.34%; net profit of 2.276 billion yuan, a year-on-year decrease of 19.05%; net profit after deducting non-recurring gains and losses (referred to as "net profit after deducting non-recurring gains and losses") was 2.231 billion yuan, a year-on-year decrease of 16.32%.

In terms of quarters, the company's operating income in the first and second quarters of this year was RMB 14.308 billion and RMB 13.364 billion, down 8.92% and 9.78% year-on-year respectively; its net profit was RMB 1.272 billion and RMB 1.025 billion, down 14.54% and 24.02% year-on-year respectively. The trend and magnitude of the change in non-net profit and net profit are roughly the same.

In fact, in the fourth quarter of 2023, Shuanghui Development's revenue and net profit had already begun to decline. The company's operating income and net profit for the quarter were 13.752 billion yuan and 726 million yuan, respectively, down 23.98% and 53.35% year-on-year.

Revenue and net profit dropped sharply in the fourth quarter, resulting in a decline in full-year performance in 2023. In 2023, the company's operating income and net profit were 60.097 billion yuan and 5.053 billion yuan, respectively, down 4.20% and 10.11% year-on-year.

In response to the decline in performance in 2023, Shuanghui Development explained that China's meat industry has sufficient supply of live pigs, relatively low pig prices, fierce market competition, and sluggish overall consumption in the meat products industry. The company's total export volume of meat products was 3.23 million tons, up 2.41% year-on-year. Affected by the decline in sales of packaged meat products and low prices of pork and chicken, operating income and net profit declined.

In the first half of this year, breeding companies such as Muyuan Foodstuff and Wens Foodstuff Group have turned losses into profits. Why is Shuanghui Development's performance still declining?

The company explained that in the first half of the year, the company's total meat product exports were 1.51 million tons, a year-on-year decrease of 7.74%. Due to the decline in sales of packaged meat products and fresh pork products, as well as the low price of poultry products, operating income decreased. The main reason for the decline in net profit was the sluggish market prices of fresh pork products and poultry products, which led to a decline in product gross profit.

Shuanghui Development mainly adopts a distribution model. In 2023 and the first half of this year, the company's distribution model revenue was 46.936 billion yuan and 21.370 billion yuan respectively, accounting for 78.37% and 77.45% of operating income.

The company's dealer scale is decreasing. In 2023, Shuanghui Development's dealers increased by 3,632, reaching 23,570 at the end of the period, an increase of 18.22% year-on-year.

The 2024 semi-annual report disclosed that as of the end of June, the number of the company's dealers was 17,305, a net decrease of 455 from the beginning of the year, a decrease of 2.56%.

In terms of direct sales model, the company's direct sales model revenue in the first half of this year was 6.223 billion yuan, accounting for 22.55% of operating income, both of which were slightly lower than the same period last year; the gross profit margin was 2.14%, a significant decrease compared with 5.67% in the same period last year.

Taking on debt while dividing profits

Shuanghui Development, whose revenue and net profit have been declining continuously, has been questioned by the market for its extremely high dividend ratio.

In recent years, Shuanghui Development has implemented an aggressive dividend strategy, distributing all profits to shareholders.

From 2020 to 2023, Shuanghui Development achieved net profits of 6.256 billion yuan, 4.866 billion yuan, 5.621 billion yuan and 5.053 billion yuan, respectively, and the corresponding annual cash dividend amounts were 8.038 billion yuan, 4.497 billion yuan, 5.543 billion yuan and 5.024 billion yuan, respectively, with dividend rates of 128.49%, 92.42%, 98.62% and 99.43%, respectively.

During these four years, the company's cumulative net profit was 21.796 billion yuan, and the cumulative cash dividends distributed were 23.101 billion yuan. It distributed more than it earned, and the overall dividend rate was about 105.99%.

In the middle of this year, Shuanghui Development's dividend plan is to pay a cash dividend of 6.6 yuan (tax included) for every 10 shares, with a total cash dividend of 2.287 billion yuan, accounting for 99.58% of the net profit in the first half of the year, basically dividing up all the net profit.

Why does Shuanghui Development distribute dividends so intensively and at such a high ratio?

The company's major shareholders hold a high proportion of shares. Currently, Shuanghui Development's controlling shareholder, Rotheks Co., Ltd., holds 70.33% of the company's shares. If the mid-term profit distribution plan this year is finally implemented smoothly, then from 2020 to the middle of this year, Shuanghui Development will distribute a total of 25.389 billion yuan in cash dividends, and Rotheks Co., Ltd. will receive about 17.856 billion yuan.

What is questionable is that Shuanghui Development is sharing profits while raising funds on a large scale. In October 2020, Shuanghui Development raised 7 billion yuan through a private placement to build broiler industrialization capacity projects, pig breeding capacity projects, pig slaughtering and conditioning product technology transformation projects, meat processing technology transformation projects, China Shuanghui headquarters projects, and to supplement working capital. Among them, 1.3 billion yuan was raised to supplement working capital.

Shuanghui Development is still borrowing. As of the end of 2023, the company had short-term loans of 5.983 billion yuan, non-current liabilities due within one year of 66 million yuan, and long-term loans of 962 million yuan, with a total of long-term and short-term debts of 7.011 billion yuan. At the end of June this year, the company had short-term loans of 7.137 billion yuan and a total of long-term and short-term debts of 7.962 billion yuan, a significant increase from the beginning of this year.

In the first half of this year, the company's financial expenses were 82 million yuan, which not only turned positive again after two years, but also set a new record for the same period.

This change indicates that the company is under certain financial pressure.

On the one hand, it is raising funds and taking on debt, and on the other hand, it is distributing almost all profits. What is Shuanghui Development’s intention?

On August 14, possibly affected by lower-than-expected performance, Shuanghui Development's share price plummeted 4.80%. On August 15, it rebounded 2.90%. Its current market value is about 79.9 billion yuan, which has shrunk by about 24 billion yuan compared with its market value of over 100 billion yuan six months ago.