A giant on the tip of the tongue! The secret of American Hormel dominating the meat industry chain

Welfare

Article | Hu Yanchao and Xie Gang, reprinted from Qilu Securities

Core View:

Hormel Foods is an American slaughter and meat processing giant with a history of more than 120 years and has always been recognized as a leader in pork production and sales It has also become the world's largest producer of turkey meat and is actively expanding into condiments, medical food and other fields. After two world wars and multiple economic recessions, the company still creates substantial returns for shareholders through continuous growth. In the past 25 years, the stock price has risen 26 times at an average annual rate of 14%. The long-term success of

Hormel is closely related to the stable management and the core values ​​of quality innovation. In more than 120 years, the company has only experienced 8 CEO changes. The stable management has allowed the company to form a deep adherence to the principles of innovation and quality. Since the establishment of the company, no serious food safety problems have been the foundation for long-term development. In addition, as a meat products company, the company's success has given us the following four points of inspiration.

One of the inspirations: keeps launching new products in compliance with consumer demand. The company continues to lead the trend of product innovation through innovation. In 1926, it invented the first canned ham SPAM. In 2008, it was the first to invent a microwave oven to heat 90-second instant microwave meals. The company has been conducting consumer market research and hiring professionals for analysis. The company attaches great importance to packaging innovation. Recognizing that new packaging that meets consumer experience is the beginning of the development of new sub-categories.

Revelation 2: focuses on multi-brand construction and obtains high profit margins. Hormel attaches great importance to brand building, and currently 26 sub-brands are No. 1 in the United States; the brand image comes from its high emphasis on food safety. The company does not produce large-scale livestock and poultry products, but signs contracts with farmers to ensure supply. Due to the strict food safety management and inspection system, no major safety accidents have occurred; the company attaches great importance to marketing and promotion. Starting from the early sausage trucks and Hormel girls, it insists on passing on the products made with Hormel products to consumers. Brand concept with delicious and nutritious meals. The third inspiration of

: focuses on high value-added downstream and moderately extends upstream. The company focuses on downstream channels and brands, and only moderately extends upstream. Its main source of pig supply is the farmers with which it has signed contracts, and its own supply is less than 10%, thus avoiding the risk of fluctuations in breeding profits.

Enlightenment 4: M&A ideas focus on category expansion, complete the three major sectors of turkey, Mexican cuisine, and medical food, and gain the leading edge in the segmented industry. The company has acquired a large number of companies, but the acquisition layout is clear. The decision is based on changes in consumer demand and the trend of consumption upgrades. Turkey (the second largest consumption of poultry meat in the United States), Mexican food (the largest minority in the United States), and medical specialties A series of strategic mergers and acquisitions have been completed in the functional food sector.

The Chinese industry should learn from Hormel: (1) Product quality is the absolute foundation of a company, and you can't relax for a while; (2) To maximize strengths and avoid weaknesses, great companies do not need to have a comprehensive industrial chain, but focus on their own advantages; (3) Pay attention to the cultivation of continuous innovation ability, as long as it is micro-innovation that meets consumer demand to the extreme, it may be the winner of enterprise development; (4) The idea of ​​mergers and acquisitions should be industrial trends and competitiveness enhancement, and scale is secondary.

Generally speaking, although the leaders of China's traditional meat industry are facing a strategic adjustment from price competition to brand competition, we are full of confidence in this industry. After all, the process of branding Chinese pork has just begun, and Shuanghui and Yurun And other nationalized companies with certain brand power will benefit from industry upgrades for a long time, and newer brands such as No. 1 Tuzhu will also usher in explosive growth once they have completed differentiated brand building (for details, please refer to the special report of the meat industry- Chinese brand pork has entered a period of accelerated development (Qilu Hu Yanchao 201311)).

As said by Chen Sheng, the founder of No.1 Native Pig-"In the traditional industry, the pig industry is the last piece of fat. The consumer goods market has been divided by industry giants. Only pork is extremely fragmented and has great development potential." .

Shuanghui is the well-deserved No.1 of China's meat products industry. Its supply chain integration, channel network expansion, brand communication, and merger strategies are far ahead of other domestic meat products companies. Shuanghui and Hormel are in product category, revenue, profit, The market value and scale are relatively close, but there are also product and packaging innovations, multi-brand operations, industrial chain layout and expansion, penetration into other new food categories, and acquisition strategies.Large room for improvement.

Hormel will continue to achieve long-term steady growth. It is optimistic about Hormel's development in the long-term. It is expected that the net profit of 2013-16 will increase by 9% annually. Although the per capita pork consumption in the United States has been shrinking year by year, the consumption of turkey is relatively stable, the future demand for functional and medical food will be strong, and the rapid growth of overseas markets will help Hormel's sustained and stable growth. According to Bloomberg's unanimous forecast of 2014-2016, the company's sales revenue was 9.10 billion U.S. dollars, 9.39 billion U.S. dollars, and 9.87 billion U.S. dollars, an increase of 4.0%, 3.2%, and 5.1% year-on-year; net profit attributable to the parent company was 600 million U.S. dollars, 667 million U.S. dollars, and 7.23 Billion US dollars, an increase of 7.8%, 11.7% and 8.4% year-on-year.

The process of branding China's pork has just begun, and the first choice for domestic long-term bidding-Shuanghui Development (000895.SZ). Benefiting from the branding and channel upgrade of the meat products industry, nationalized companies with certain brand power such as Shuanghui and Yurun will continue to grow steadily in the medium and long term. Among them, we prefer Shuanghui Development. It is estimated that the company's EPS will be 1.78, 2.20, and 2.71 in 2013-15. Yuan, a year-on-year increase of 35%, 24%, 23%. The current stock price corresponds to 20 times PE in 2014. It is at the low end of the food sector and the safety margin is obvious. It is strongly recommended to buy. It is expected that a strong valuation restoration will be ushered in before and after the 2014Q1 quarterly report.

1 Hormel: , a century-old leader in American meat products

Hormel Foods Corp is a slaughter and meat product processing giant in the United States, mainly producing low-temperature pork products, high-temperature products, cold fresh meat, turkey products and a small amount of beef, Chicken products, as well as condiments, nutritional products, and functional and medical foods. With a history of more than 120 years, its headquarters is located in Austin, Minnesota, USA. It has 19,800 employees and is a Fortune 500 company in the United States (319 in 2013).

Hormel has always been recognized as a leader in pork production and sales, and has become the world's largest turkey meat producer. At present, the number of pigs slaughtered in the United States is fifth, with more than 10 million pigs slaughtered each year, and the market share of turkey products is about 25%. Its products have been exported to more than 60 countries on five continents.In addition to most products processed in the United States, it has also signed agreements with many countries including China, Japan, the Philippines, South Korea, Australia, the United Kingdom, Panama, Poland, Costa Rica, Spain, etc. License agreement may have a joint venture. With the continuous development of the company's products and brand power, the company's stock price has also risen. Hormel's share price has increased by 26 times in the past 25 years, equivalent to an average annual increase of 14%, and only 4 of the past 25 years have fallen. At present, the company has a market value of US$11.7 billion, second only to US$12.5 billion of American poultry and beef giant Tyson in the meat industry, with annual sales exceeding US$8.7 billion. With 10,600 kinds of food products, 275 registered trademarks, many of its products enjoy a high reputation and popularity in the food industry, and are deeply loved by families and catering companies.

Hormel is now divided into 5 business divisions. Refrigerated Products is cold fresh pork meat and low-temperature meat products, accounting for 49% and 28% of revenue. This is the core business of Hormel. Grocery Products is the supermarket product department, which accounts for 17% of revenue and 26% of profits. Mainly shelf-stable food, including luncheon meat, stew, broth, Salsa sauce, guacamole, hot sauce, peanut butter, soy sauce, microwave meals, etc. Jennie-OTurkeyStore is one of the world's largest turkey producers. It came from Hormel's two acquisitions in 1986 and 2001 and now provides more than 1,500 turkey products to 27 countries. It accounts for 18% of company revenue and 27% of profit.

Specialty Foods is the specialty food department, which provides supplements, nutrition, sugar products, milk powder, cheese, special oils, etc. for ordinary consumers and nursing institutions, accounting for 11% of the company's revenue and profits. International is the international department. Hormel participates in multinational operations through joint ventures, subsidiaries, licensed production and direct sales. There are currently 6 joint ventures, 3 licensed institutions and 2 wholly-owned subsidiaries. Although it has been internationalized very early, The proportion of international business is currently not high, only about 5%.

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has experienced several economic depressions and two in the course of more than 100 years of development and growth of Hormel. During the Second World War, Hormel has been prosperous and has brought rich returns to investors. The reasons behind it are worthy of investment. The initial success of

is inseparable from the founder, George Hormel. When Hormel was founded, facing the double-teaming of the five major meat processing giants in Chicago, the five giants occupied various favorable resources-railways, refrigerated carriages, packing plants and livestock yards, while Hormel did not even have a refrigerated carriage. For this reason, George Hormel developed a new industry model. Instead of a single industrial park model focused on the dock like Chicago, he built a factory in an area away from the dock and close to the farm, buying livestock directly from farmers, eliminating the need for construction. Large-scale livestock farms, this direct purchase model was the first in the industry at that time, and then the five giants followed suit. Secondly, George Hormel emphasized the importance of quality from the very beginning and insisted on producing the highest quality products. This was the key to its ability to compete with the five giants because it was a niche market at the time. Moreover, at the beginning, George Hormel only chose pork processing, which was related to his years of tracking and analysis. The data he recorded showed that the utilization of pork is the highest, which will generate the greatest profit. At the same time, focusing on one category is good for this. The category quickly became bigger and stronger. The long-term success of

is related to stable management. The current CEO is the ninth leader of Hormel since its establishment 120 years ago. Many employees of the company joined the company as soon as they graduated and worked until retirement. A stable management can make the company adhere to the principles of innovation and quality, and the employees are very loyal. , The company has strong cultural cohesion, which is why the company can develop steadily and rapidly after mergers and acquisitions. In addition to the long-term stable management team and the core values ​​of quality, according to our research, the company's long-term development also benefits from the following four aspects. One of the inspirations of

: In response to consumer demand, continue to introduce new products

• continue to lead the trend of product innovation: from canned ham to Compleats microwave meal

invented the world's first canned ham. The outbreak of the First World War made people thirst for meat products that can be stored for a long time and are easy to transport. In 1926, the company devised a method of curing and sealing ham and launched the world's first canned ham. The company's sales increased greatly, and it laid the foundation for SPAM to spread to all parts of the world with the U.S. military.

When the U.S. industry was in a downturn in the 1980s, In response to changes in consumer demand for healthy and convenient food, the company launched more than 130 new products, and the company's profitability rebounded sharply and gradually came out of the trough.

invented the microwave meal---delicious as long as 90 seconds, the product quickly became popular in the United States. In 2008, the company launched Compleats microwave meals with the slogan "From your desk drawer to delicious food-in just 90 seconds, unimaginable fast, convenient and delicious, and never delay your precious working time." Compleats is specially developed for office workers. Many office workers like to have lunch in the office, but because they do not have satisfactory food, they have to go out to find a place to eat. Compleats solves this problem well. It is a complete meal that does not need to be refrigerated and is easy to carry. You can get a delicious, nutritious and hearty meal by heating it in a microwave for 90 seconds. Once Compleats was launched, it became popular and became the company's star product.

• attaches great importance to the analysis of consumer needs, and continues to invest in food research and development

Hormel has been conducting consumer market research and hiring professionals for analysis. For example, its microwave products and glass bottled foods launched in 2008 are based on market research and analysis. It is concluded that people's growing demand for food with both taste and convenience. It is developed for people who pursue fast, nutritious and cooked food, especially office workers. These two products. The core competitiveness of

Hormel lies in innovation, constantly launching new products that are different from competitors, which in turn benefits from its heavy investment in food research and development, and has a strong R&D team. Received awards from magazines such as "Food Processing" and "Meat Market and Technology" for many yearsThe best R&D team award of the year. The promotion mechanism within the company also makes cross-brand and cross-departmental innovation emerge in an endless stream. The company follows a philosophy that is to innovate products.

company often launches some new categories, innovating from the perspective of taste, health and nutrition. From the perspective of consumer psychology, consumers are also relatively receptive to new categories and tend to try new products.

Hormel is not only committed to developing new products suitable for global tastes, but also going to the countryside to develop products suitable for local tastes. For example, in the Chinese market, Hormel has launched Chinese products specifically suitable for Chinese tastes-Rose South Milk Ham, Cantonese Style Sausages, Qilu-style secret sauce sausages, Sichuan-Chongqing-style spicy sausages, Meizhou Dongpo sausages, mellow ginger duck, Shanghai red sausage, spiced elbow, etc The important point is packaging. Hormel has always been a leader in packaging innovation and has been recognized by the packaging industry. Hormel's packaging innovation can be traced back to the world's first canned ham launched in 1926, allowing the company to grow rapidly in the early days of its business, breaking through the siege of the five giants, and creating the ultra-high market share of SPAM's single category that continues to this day. When the industry was in a downturn in the 1980s, Hormel invented the TopShelf vacuum packaging technology. The food packaged with it does not need to be refrigerated and has a shelf life of up to 18 months. This is a revolution in packaging technology. Hormel uses this to get out of the trough, 4 years Profit increased by 100%.

new packaging brings new shares and profits. In recent years, Hormel has launched a series of new packaging, which has consolidated the company's leading position in food packaging innovation. Such as the introduction of steamable packaging boxes for chili products, steamable bags for packaging single SPAM luncheon meat, and microwave heating packaging for DintyMoore. The introduction of these new packaging has greatly increased the company's supermarket food sales, and sales have soared, far exceeding expectations, accounting for 45% of the company's profit growth.

incorporates suppliers into its own innovation team. Although R & D packaging has caused a certain amount of cost, it has benefited the entire supply chain and greatly promoted Hormel. Hormel has maintained a good cooperative relationship with suppliers for a long time, and will incorporate suppliers into its own innovation team, which has provided great help to Hormel's packaging research and development.

Revelation 2: Pay attention to brand building and obtain high profit margins.

• has obvious brand advantages and establishes a broad moat

Hormel attaches great importance to brand building, with obvious brand advantages, it is a broad moat. Hormel's many brands are well-known in the United States and enjoy a high reputation among consumers, retail stores, and catering industry customers, such as SPAM luncheon meat, Jennie-O turkey, DintyMoore beef stew, CHI-CHI'S sauce, Compleats microwave meal, Wholly avocado Sauce, Stagg peppers and various low-temperature meat products of the Hormel brand, etc., can be said to have become indispensable things in the daily life of American people.

SPAM with 80 years of history has become synonymous with luncheon meat. It has a market share of up to 80% in the US market and is also one of the most popular brands in Asia. Nowadays, the term spam in English comes from it (this is often used to ridicule, Hormel also often litigates for this, but it undoubtedly shows that its product has been deeply rooted in the hearts of the people), which shows its popularity. The initial success of SPAM was to open the market at an extremely low price. When SPAM was launched during the Great Depression, the purchasing power of Americans dropped sharply, and the price of SPAM was 1/3 of the same amount of meat, which quickly opened the market. As the main food of the US military during World War II, it followed the US military to spread to the world. After the war, it became one of the main foods for the United States to aid Europe. Some McDonald's in the United States even have SPAM luncheon meat burgers. Quality escorts the brand

Hormel's strict control of product quality and safety is also the key to its brand's endurance. These brands are very popular among the American people. In addition to benefiting from the delicious, nutritious and healthy guaranteed by their food experts and R&D team, quality assurance is essential. Hormel is not born on a large scaleIt produces livestock and poultry, but provides it with a contract with the breeder. It has a strict food safety management and inspection system to ensure the safety of the product. There has never been a major food safety incident in more than 100 years. Entering the Chinese market in 1995, it was also the first company to establish a food safety management system and became one of the first two meat product manufacturers in Shanghai to obtain food safety marks.

• marketing clears the way for the brand

Hormel has a lot of experience in marketing innovation, except for the sausage trucks and Hormel girls back then. The company has invested heavily in advertising, and SPAM luncheon meat food trucks are full of streets and alleys. Distribute recipes using its products for cooking, including the preparation of breakfast, lunch, dinner and snacks, so that consumers can use Hormel's products to make delicious and nutritious meals. This marketing effect is very good and greatly stimulates People's desire to consume and experiment. In China, it achieves the effect of promoting safety, health and nutrition by becoming the designated meat supplier of the State Sports General Administration.

In addition, the industry in which Hormel is located is very important for the construction of sales channels. Hormel has a large-scale professional sales team. In retail, it has established good cooperative relations with large supermarkets such as Carrefour, Wal-Mart, Metro, and some chain supermarkets; in terms of catering, it is one of the main suppliers of Parkson Group (KFC, Pizza Hut, etc.), and it has also cooperated with many star The hotel has developed a deep cooperation. The

• brand operation brings high profit margins, far exceeding Tyson and Smithfield

Hormel's profit margin has always been at a high level in the industry. In 2013, the net profit reached 6.1%, which is higher than the other two American meat giants Tyson and Smithfield. a lot of.

through the trend of fresh branding, the company's profit margin is rising. After entering the 21st century, an important move of the company is to promote the conversion of fresh meat products, one of its core businesses, to branded fresh meat products, and the company's profit margin continues to rise.

But in the short term, Hormel, like most food companies, has net profit and inflation inversely proportional. This is because under normal circumstances, the sales price of food companies is relatively rigid, and the decline in the cost end means that the profitability of the stage is getting better.

Revelation 3: Focus on high value-added downstream and moderately extend upstream

• The supply of live pigs is mainly from contract farmers and the self-sufficiency rate is not high.

The U.S. slaughter and meat processing industry entered a period of industrial integration in the 1980s, and a large-scale occurrence occurred Local horizontal and vertical mergers and acquisitions activities. Companies represented by Smithfield, Tyson, etc. have achieved the ultimate in vertical integration, and vigorously entered the upstream aquaculture industry. Especially Smithfield, which has a complete industrial chain from pig breeding to slaughter and processing, and has become the largest pig raising and slaughtering company in the United States.

Hormel has also carried out large-scale mergers and acquisitions horizontally, especially in other meat and nutritional products with high added value. However, it is only a moderate extension to the upstream, and the amount of pig breeding is very small. The main source of pig supply is the farmers who signed the contract with it, and its own supply is less than 10%, and Smithfield's self-sufficiency rate has reached 50%.

Hormel focuses on downstream high value-added brand products with stable profitability and favored by the capital market.

Smithfield and Hormel represent two different development models in the industry.

Smithfield has a high proportion of upstream breeding and slaughter, a long industrial chain, and high systemic risks. Moreover, the operation risk of pig breeding business is also high. It is very sensitive to the cyclical changes of feed ingredient costs and pork prices, and the profit level is very unstable. Although the concentration of pig farming in the United States is very high,

, ​​the price of pigs still fluctuates greatly. The main reason is that the price of pork is largely affected by the breeding cost of corn and soybean prices. In addition, due to the large export volume of US pigs (about 20% of exports), Live pig prices are also affected by demand in overseas markets.

Hormel mainly focuses on the middle and downstream, especially deep processing, producing high-value-added branded meat products, with a short industrial chain, quick response to product structure adjustment, and relatively stable profitsset. Due to the high concentration of pig farming in the United States, the company can obtain a relatively stable source of raw materials through contracts. It is not easy to get involved in the relatively high-risk field of breeding, but focus on the relatively low industry risk and high added value. Field of meat products. For example, when feed prices began to rise sharply in 2008, Hormel still maintained a relatively high level of profit. This is because of the small scale of its upstream farming, which effectively avoided the risks of upstream farming, and slaughter business and meat products can pass on part of the cost. .

Since Smithfield has a relatively high share of its breeding business, its pig breeding business has suffered losses for many years. The animal welfare requirements and labor union wage rigidities in developed countries have increased the burden on enterprises. Animal welfare projects will add at least $300 million in additional expenditures before 2017: According to a document submitted by Smithfield to the SEC, due to the pressure of downstream food companies to improve animal welfare protection, the company's goal is to establish independence for each pregnant sow by 2017 In the barn, the living space of each sow will be twice as much as the current one. This means that a large number of new pig pens will be built, old pig farms will be renovated, and personnel will be trained and recruited without increasing production and sales.According to the company's calculations, the cost of new pig pen reconstruction for each sow is $250-650, and the company will spend about 300 million U.S. dollars for renovation, which is equivalent to more than twice the average annual net profit of 142 million U.S. dollars in the past five years. We believe that this is only the cost of the company's 460 pig farms. The company also has more than 2,000 contract production farms. About half of the slaughtered pigs, if these farms also participate in the transformation of animal welfare, the company's production costs are expected to further increase substantially. In addition, Smithfield is in a blue-collar worker industry with traditionally strong union power. SEC documents show that 20,550 of the company's current 46,050 employees are union members or are protected by union collective bargaining agreements, considering that there is no layoff in the acquisition agreement. With the promise of not closing the factory, labor costs will continue to be high in the future, and it will be difficult to reduce them. The stable profitability brought by this development model of

Hormel has been greatly recognized in the capital market. Although the scale and income are only 2/3 of Smithfield, the market value is three times that of Smithfield.

Enlightenment 4: Acquisition ideas focus on category expansion, complete the three major layouts of turkey, Mexican cuisine, and medical food

• Acquire the largest turkey manufacturer in the United States to quickly get out of the downturn in the pork industry in the 1980s

Meat diversification and decentralized operations Risks, quickly get out of the downturn in the pork industry. The single operation of pork products is more risky. During the downturn of the pork industry in the United States in the 1980s, the acquisition of Jennie-O enabled Hormel to quickly get out of the trough and achieve a rapid recovery in revenue and profit. As the industry leader,

Jennie-O has low operating risk after acquisition and can quickly open the turkey market. Jennie-O occupies more than 20% of the American turkey market, and the brand effect is significant. It is not necessary for Hormel to develop the market and brand by itself. The

turkey meat market has a large capacity and a bright future. Turkey is the fourth largest meat food in the United States after chicken, beef, and pork. It is an indispensable food for festivals, and Americans are eating turkey meat more and more in daily life instead of only on holidays. Turkey is mainly eaten by Europeans and Americans, and its popularity in Asia is not high. This is mainly because the value of turkey has not been understood. The protein content of turkey is higher than that of pig, beef, and lamb, and it is rich in a variety of amino acids. And vitamins, but the fat content and cholesterol content are very low. It is especially suitable for cardiovascular disease patients and the elderly. It is one of the most ideal foods for humans. With the improvement of the economic development level of Asian countries, especially developing countries such as China, people will pay more attention to healthy diet, and the trend of aging population, turkey meat will become more and more popular, and Asia, especially China, may be more and more popular in the future. Will become a broad market for turkey meat.

• acquires Mexican specialty food and condiment companies, and expands the product line

Some American national foods and foreign specialty foods such as Mexico and Italy are very popular in the United States. Hormel has incorporated these products and brands into its product line through a series of acquisitions. Acquired condiment company perfectThe product structure allows consumers to make a table of delicious dishes with a set of Hormel products. Through the acquisition of these companies, Hormel has expanded its non-meat business, reduced its over-reliance on the meat business, and diversified operating risks.

After fully investigating the market, Hormel found that the most popular national cuisine in the United States is Mexican cuisine, and there are many Mexican Americans. Salsa, guacamole, and chili sauce are indispensable condiments in Mexican cuisine. (Salsa: A commonly used cooking and accompaniment sauce in Mexican cuisine, usually made with tomatoes and peppers. Guacamole: A traditional sauce in the Aztec culture of South America, it is generally used to dip staple foods such as Mexican pancakes. In the United States, guacamole is very popular. It is a snack often prepared by young people when they have parties. It is used to eat with fried potatoes, fried corn, etc.)

At present, Hormel has established a complete product and brand line in the Mexican food field. , Including:

• acquisition of medical food companies to see the huge future demand

With the improvement of the level of medical specialization, the future demand for special medical food will be strong. Hormel acquired a number of companies that produce medical foods and established HealthLabs to enter the medical food field.

Generally speaking, although Hormel produces pork, it has never stood in the air. In addition to its success stemming from good operation and management, a series of targeted acquisitions are also crucial. Through acquisitions, it has achieved an increase in the scale and profitability of the company, and has well dispersed operating risks. The most important thing is it. Adapted to changes in consumer demand and the trend of consumption upgrades. The enlightenment of

Hormel's success to China's meat industry and the development of Shuanghui

Shuanghui, as a leader in Chinese meat brands, has a business strategy very similar to Hormel, and also has obvious advantages in deep processing. Positioning joint meat processing, the current revenue and profit of the two companies , And the market capitalization scale is also roughly the same.

By comparing Shuanghui's and Hormel's strategies in product innovation, brand management, industrial chain layout, mergers and acquisitions, we believe that Shuanghui is focusing on product and packaging innovation, meat product brand building, and appropriate upstream expansion of the industrial chain, and other specialty food products. There is still much room for improvement in field expansion.

At the same time, we believe that China's meat industry should draw the following enlightenment from Hormel's 100-year development track: (1) Product quality is the absolute foundation of a company, and it cannot be relaxed for a moment; (2) To maximize strengths and avoid weaknesses, great companies do not need to have a comprehensive industry Chain, but focus on its own areas of advantage; (3) Attach importance to the cultivation of continuous innovation capabilities, as long as it is micro-innovation that meets the needs of consumers to the extreme, it may be the winner of enterprise development (4) The idea of ​​M&A should be the industry Trends and competitiveness increase, scale is secondary.

Investment advice: Hormel is still the long-term stable configuration target, the domestic first choice for Shuanghui development

3 Hormel: The US market is steadily increasing +

Overseas markets are expected to increase by 9% per year

US Per capita pork consumption is shrinking year by year, turkey consumption is relatively stable, and future demand for functional and medical food will be strong. Per capita pork consumption in the U.S. has dropped by 10% in the past ten years, while per capita turkey consumption has been relatively stable, maintaining at around 8kg. The trend of Americans to reduce pork consumption may have a certain impact on Holeml's cold fresh meat business, but the impact on its high value-added meat products will not be great. Due to the stability of per capita turkey meat consumption and the difficulty of changing traditions, Hormel’s turkey meat business in the US market will grow steadily. In recent years Hormel has acquired many functional and medical food companies. American consumers have increased their consumption of meat products with specific functions. With the improvement of medical specialization, the market segment of medical food will have strong future demand.

China's pork consumption will continue to grow in the future, and the core growth direction is cold fresh meat and low-temperature meat products. The turkey market has a bright future. In recent years, the United States has gradually increased its exports of turkey to the Asia-Pacific region. Turkey is an ideal meat product with high protein, low fat and low cholesterol. Especially in the nutritional elements of Asians, protein indicators are mainly lacking. With the improvement of the economic level and the consumers' concern about the health of food, the future market of turkey in Asia is very promising. And Jennie-OStor under Hormele can use the huge sales team accumulated by Hormel in China and the Asia-Pacific region for many years to quickly open the market and gain a high market share.

In short, we are optimistic about the development of Hormel in the long-term: the US market is steadily increasing, and overseas markets, especially the Asia-Pacific region, will become the main growth point. According to Bloomberg's consistent forecast, Hormel is expected to achieve sales revenue of US$9.10 billion, US$9.39 billion, and US$9.87 billion from 2014 to 2016, an increase of 4.0%, 3.2%, and 5.1% year-on-year; net profit attributable to the parent company is US$600 million, 667 million US dollars, 723 million US dollars, an increase of 7.8%, 11.7%, 8.4% year-on-year; EPS 2.273 yuan, 2.528 yuan, 2.737 yuan.

We are full of confidence in this industry. The process of branding China's pork has just begun. National enterprises with certain brand power such as Shuanghui and Yurun will benefit from the industry upgrade for a long time, and new brands such as No. Brand building will also usher in explosive growth.

As said by Chen Sheng, the founder of No.1 Native Pig, "In traditional industries, the pig industry is the last piece of fat. The consumer goods market has been divided by industry giants. Only pork is extremely fragmented and has great development potential."

We recommend that investors pay close attention to the upgrading trend of the industry for a long time. The long-term target is "Shuanghui Development". It is estimated that the EPS of Shuanghui Development in 2013-15 will be 1.78, 2.20, and 2.71 yuan, a year-on-year increase of 35%, 24%, and 23%.

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