WH Group Earnings: Operating Profit Continues To Be Hampered by Weak U.S. Hog Prices

June-quarter results for narrow-moat WH Group disappointed, primarily due to an operating loss at its U.S. hog operations. On a positive note, the packaged meat business demonstrated better momentum and moderately exceeded our estimates. But we still cut our 2023 sales and operating profit projections to account for the weaker second-quarter numbers. We concur with management’s view that hog prices in China would start rebounding moderately in the second half. Our fair value estimate is fractionally reduced to HKD 7.4 per share (from HKD 7.5), which represents 11 times 2023 price/earnings and 6 times EV/EBITDA. The weak U.S. upstream outlook is likely to continue to weigh on investor interest in WH Group, although we think many of the current challenges are reflected in the current share price.