For all pig-raising enterprises, the "pig cycle" is a gambling game: losing and winning, one thought of heaven and one thought of hell .
html On January 9, New Hope talked about how the company responded to short-term debt repayment pressure and the source of cash flow inflows this year in the disclosed investor relations activity record. Combined with a series of measures such as New Hope's previous strategic adjustments to the sale of poultry segments, disposal of idle pig farms, and efficiency improvements and fee reductions at the company headquarters level, Liu Chang, who has taken over from his father "Feed King" Liu Yonghao for ten years, is leading New Hope to the top. After a market value of 100 billion yuan, faced nearly 97 billion yuan in debt and the bottom of the three-year pig cycle, and ushered in the first "big test" since taking over New Hope.A big step forward
In 2019 and 2020, New Hope made a profit of 5 billion yuan for two consecutive years. However, from 2021 to the first three quarters of 2023, New Hope has already suffered a cumulative loss of 14.91 billion yuan. In addition to two consecutive years of losses, the amount of accumulated losses has exceeded the sum of profits in the four years from 2017 to 2020.
Speaking of which, has caused New Hope to continue to suffer huge losses. The main reason is New Hope's huge bet on the pig farming business in recent years. New Hope was founded in 1998 and entered the capital market in March of the same year. It started with the feed business. In February 2016, New Hope officially announced its transformation and announced an investment of 8.8 billion yuan to complete the annual pig production within 3-5 years. The slaughter volume is 10 million heads.
In the second half of 2018, the outbreak and spread of African swine fever led to a significant reduction in industry production capacity, a sharp expansion of the pork supply gap, and a sharp rise in pork prices. In the fourth quarter of 2019, the price of live pigs reached an unprecedented peak of around 40 yuan/kg, and will basically remain at a high of 30-40 yuan/kg throughout 2020.
Abundant breeding profits have stimulated large-scale investment in production capacity. Coupled with the recovery of African plague prevention and control levels, industry production capacity has rapidly recovered and continued to grow. In the next two years, major breeding farms will generally expand their production capacity, especially large-scale breeding enterprises, whose production capacity will surge. New Hope even regards pig raising business as its “No. 1 project”. At the 2019 annual performance briefing meeting, Liu Chang bluntly said, "Pig raising is the most important thing at the moment" .
Before 2019, New Hope’s pig farming business accounted for a relatively small revenue share, less than 5%. But by 2020, this figure has increased to 22.56%, becoming the second largest business in the entire enterprise's revenue.
From 2019 to 2020, New Hope will acquire nearly 20 foreign companies. At the same time, in 2020, New Hope also launched a 4 billion yuan fundraising plan, of which 3.2 billion yuan was invested in pig breeding projects; in 2021, the company issued another 8.15 billion yuan of convertible bonds to invest in pig breeding projects and repay bank loans.
From 2016 to 2022, New Hope’s construction in progress items also increased from 846 million yuan to 20.158 billion yuan. In 2022, New Hope's fixed assets account will be as high as 35.683 billion yuan, and the aforementioned two accounts total up to 55.841 billion yuan, accounting for 40% of the company's total assets. Most of these fixed assets are also used for the expansion of pig farming.
However, due to overcapacity in pig production and continued decline in pig prices in recent years, pig prices have also entered a long downward cycle. The "side effects" of New Hope's large-scale and rapid expansion have begun to appear, and debt problems have surfaced.. According to the latest financial report data, in the first three quarters of 2023, New Hope’s monetary funds can no longer cover the company’s short-term borrowings. At the end of September 2023, New Hope's monetary funds were 11.597 billion yuan, short-term borrowings were 16.456 billion yuan, non-current liabilities due within one year were 15.098 billion yuan, and long-term borrowings were even as high as 25.438 billion yuan. Total liabilities are as high as 97 billion yuan, and the debt ratio is approaching a historical high of 72%. Shen Meng, director of
Chanson Capital, said that we are currently at the bottom of the pig cycle, but this round of pig cycle has been superimposed with more complex factors, resulting in no signs of recovery after hitting the bottom, bringing more uncertainty to pig companies. Risks, the entire industry can only place its hope on the natural reduction of production capacity on the one hand, and on the other hand, it must continue to shrink its front line to support the transition with the lowest possible operating costs.
Slam on the brakes
There is no doubt that the pig industry is the "culprit" that has brought down New Hope's overall performance.
Zhang Minggui, who was named by Liu Yonghao and Liu Chang to take charge of the "No. 1 Project" of pig raising, said frankly when facing investors at the performance briefing meeting in June 2023 about the previous radical expansion that at that time, he was indeed concerned about the management capabilities after rapid expansion. The dilution problem is underestimated. If we can really go back to the past, we will be more stable in the pace of expansion.
Public information shows that since 2022, New Hope has sold 18 pig farms under construction and in production to Chengdu State-owned Assets twice, and has withdrawn 2.243 billion yuan of funds . However, this little bit of recovery is a drop in the bucket for New Hope's liabilities.
What is even worse is that the current situation of oversupply of live pigs in the short term has not yet seen signs of a cycle reversal. Data from the China Pig Network shows that as of December 1, 2023, the national foreign three-yuan pig price was reported at 14.67 yuan/kg, a slight increase of 1.1% from the previous day, and a year-on-year decrease of 36.85%. According to wind data, as of the end of October that year, the number of reproductive sows was 42.1 million, still at a high level. Since the production cycle from reproductive sows to piglets to commercial pigs takes about 10-11 months, the industry still has a lot of production capacity that needs to be reduced in the short term.
Also in November 2023, New Hope’s complete cost of slaughtering fattened pigs at the operation site is about 15.6 yuan/kg. The average sales price of commercial pigs that month was 13.95 yuan/kg, indicating a cost inversion.
Liu Chang, chairman of New Hope, said that after the rapid expansion of the pig industry, management capabilities failed to keep up in time, affecting production efficiency and profitability. Against this background, on the one hand, New Hope will liquidate some pig farm resources and revitalize assets; on the other hand, New Hope will promote a 7.35 billion yuan private increase plan, and the funds raised are intended to be used to acquire assets, upgrade pig farms and repay debts.
On December 15, 2023, New Hope announced that the company and its wholly-owned subsidiaries Shandong Liuhe and Beijing New Hope planned to transfer 20%, 2% and 29% of the equity interests in their subsidiaries Zhongxin Food to Zhongmu Group respectively. The investor acquired the company's poultry industry chain operating entity in cash, and the transaction price of 51% of the equity of Zhongxin Food totaled approximately 2.7 billion yuan.
On the same day, New Hope announced that the company's holding subsidiary Beijing New Hope signed an equity transfer agreement with Hainan Shengchen, and planned to transfer 67% of the equity of Deyang New Hope, the operating entity of the company's food deep processing business, for a price of 1.5 billion yuan.
On November 30, New Hope had planned to issue A-shares to no more than 35 specific targets, with a number of no more than 1.364 billion shares, and the total amount of funds raised would not exceed 7.35 billion yuan. Among them, 3.645 billion yuan will be used to transform pig farms into digital intelligence, 1.5 billion yuan will be used to acquire holding subsidiaries, and the remaining 2.204 billion yuan will be used to repay bank debts.
For pig raising companies, the impact of the pig cycle is the cyclical performance . In an up cycle, everyone joins the game one after another and makes a lot of money; while in a down cycle, confiscated pig companies often suffer heavy losses or even lose all their money.
In addition to waiting for the price of pigs to rise, New Hope is also "improving internal management capabilities through various measures" . It plans to retire 50 projects throughout 2023, and 41 projects have been completed in the first three quarters. According to a report from "City Boundary", many business lines of New Hope will be shrinking in 2023. According to a resigned employee, there was a safety and environmental protection department that directly cut off about two-thirds of its people, and some departments were directly disbanded. In terms of the total number of employees, from 2020 to 2022, the total number of employees decreased by 18,665.
The "Hope" of New Hope
According to the latest stock price estimates, Liu Yonghao's family's equity has dropped by nearly 70 billion yuan in the three years of the pig cycle.. But for the former richest man in China, although it hurts, it won't break his bones. At the 2023 China Business Leaders Annual Meeting, New Hope Group Chairman Liu Yonghao said frankly that although New Hope has a strong family background, the unprecedented difficulties it is currently facing also exist objectively. The entire breeding industry has been hovering at the bottom for nearly three years, and almost all farmers are losing money. What choice to make at this juncture is a test for everyone.
In the cyclical industry, the competition is never about who can be luckier to catch the storm, but about the company's size, resource reserves and management model.Although New Hope is still at a loss overall, the good news is that by reducing breeding costs, the single-season losses in the past few quarters have been gradually reduced.
Regarding whether to raise pigs, Liu Yonghao concluded that pig raising is still the core business. New Hope established the Pig Breeding bg (Business Group) in 2023, aiming to focus more on intensive farming business and reduce breeding costs. During the downturn of the entire industry, what New Hope needs to do most is to adjust its model and enhance its own superiority. The rest is to give time and wait for the next bull market or the industry to return to normal.
At that time, New Hope may be able to rely on its position and cost advantages to stand out in the fiercely competitive market and become a veritable pig king.
