Zhongpin HOGS the Chinese pork market

Zhongpin Inc. (HOGS, quote), a leading Chinese meat and food processing company, reported March 13 that 2011 revenues increased 54% to $1.46 billion. Profit increased 10% to $64.2 million, but basic earnings per share decreased 0.6% to $1.66 in 2011.

Bringing chilled pork to the world.

Zhongpin specializes in pork and pork products, vegetables, and fruits. Its distribution network in China covers 20 provinces plus Beijing, Shanghai, Tianjin, and Chongqin, with over 3,000 retail outlets. Zhongpin’s export markets include Europe, Hong Kong, and other countries in Asia.

The company’s most popular product line is chilled pork, which is manufactured in two-stages using flash-freezing and cool segmentation techniques. However, the company offers over 400 pork products, and introduced 79 new products in 2011.

According to Chairman and CEO Xianfu Zhu, most of the company’s revenue gain came from pork product prices, which rose an average of 44% on tonnage that was up 7%. “With the prices of both hogs and pork expected to decline from 15% to 20% in 2012,” Zhu said, ” it will be difficult to report higher results in 2012 compared with 2011.”

The company expects that 2012 sales revenues should be within a range of US$1.55 billion to $1.72 billion  Gross profit margin is expected to be between 8.6% to 10.2%, with net profit of 3.3% to 4.2%.

Zhongpin sees China’s economy as healthy, and pork continues to be the preferred protein for most Chinese consumers. The company believes the fundamental demand for pork will continue to be strong.

Hog prices increased rapidly in 2011, peaked between September and October 2011, and are expected to decline in 2012 due to an abundant supply of hogs. Hog prices are estimated to decline on average by 15% to 20% in 2012, and have already declined about 15% from the end of January 2012 to mid-March 2012.

Pork prices tend to follow hog prices, since most pork producers, including Zhongpin, try to maintain a good spread between the price of hogs and the price of pork.

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