WH Group Q3 Profit Missed; Near-Term Profit Outlook Weakening; Lowering FVE to HKD 8.10

Narrow-moat WH Group reported third-quarter results that trailed our estimates of revenue and operating profit, with a wider gap in reported operating profit versus our expectations. The deterioration in the operating margin was primarily caused by the upstream business across China and the U.S., as packaged meat profitability was broadly consistent with our forecasts. We kept our projection for fourth-quarter sales broadly unchanged but lowered operating profit estimates to account for continued pressure in the upstream business in the U.S. We also revised down 2023 pork segment operating profit given expected pressure in feed costs. Our fair value estimate is lowered to HKD 8.1 from HKD 8.4 per share as a result of weaker profit outlook. We believe near-term sentiment for the stock will be suppressed by soft profitability outlook toward the end of 2022 and into 2023.