Recently, Muyuan Shares and COFCO Meat both released their 2018 financial results. According to the published reports, both companies reported losses. Specifically, Muyuan Shares posted a net profit of 520 million yuan, down 78.01% year-on-year, while COFCO Meat suffered a loss of 628 million yuan. Regarding the loss in performance, both companies attributed it to the impact of the pig cycle and African swine fever in the second half of 2018 on the hog market.
Muyuan Shares’ net profit fell by 78% in 2018, with the primary reason being the decline in hog prices.
On the evening of March 26, Muyuan Shares disclosed its 2018 annual report. During the reporting period, the company achieved sales revenue of 13.388 billion yuan, an increase of 33.32% year-on-year. Net profit attributable to owners of the parent company amounted to 520 million yuan, a decrease of 78.01% year-on-year.
In 2018, the company sold a total of 11.011 million live pigs for the entire year, including 10.109 million commercial pigs, 0.864 million piglets, and 0.038 million breeding pigs.
The annual report shows that the main factors affecting performance changes are as follows:
(1) Subsidiary companies have been gradually putting into operation, releasing their production capacity and driving rapid growth in the volume of pigs sold. As of the end of 2018, the number of subsidiary companies in the breeding sector had reached 84. Since 2015, the company has maintained a high pace of construction; after 2016, as production capacity continued to be released, the volume of pigs sold grew rapidly. In 2018, the company sold a total of 11.011 million live pigs for the year, representing a year-on-year increase of 52.14%.
(2) In 2018, influenced by the pig cycle and African swine fever in the second half of the year, hog prices declined significantly compared to 2017. The company’s average selling price for commercial pigs for the entire year was 11.62 yuan per kilogram, a decrease of 19.70% from 2017. The decline in prices was the primary factor driving the drop in net profit in 2018 compared to 2017.
Affected by the decline in hog prices, COFCO Meat suffered a loss of 628 million yuan last year.
In the long term, African swine fever will have a significant impact on the production capacity of the hog farming industry, and it may take a relatively long time to restore capacity. In 2019, the company plans to market between 13 million and 15 million hogs. If the average selling price of commercial pigs exceeds 15 yuan per kilogram, the company’s operating revenue will surpass 20 billion yuan, representing an increase of approximately 50% over the previous year. The company’s cash flow is expected to remain broadly balanced throughout the year.
On March 26, COFCO Meat announced its 2018 financial results, reporting revenue of RMB 7.168 billion, a 3% increase year-on-year. However, due to factors such as lower hog prices, the company posted a loss of RMB 628 million, compared to a profit of approximately RMB 452 million in 2017.
Regarding revenue growth, COFCO Meat believes that, Driven primarily by rapid sales growth and benefiting from brand promotion and channel expansion, the brand’s business revenue increased by 15.5% year-on-year. The revenue share increased by 1.9 percentage points year-on-year. Meanwhile, the loss during the period was primarily attributable to a 19.8% year-on-year decline in hog prices.
The announcement showed that in 2018, the company sold 2.55 million live pigs, representing a year-on-year increase of 14.5%. The average weight of commercial market hogs sold reached 108.4 kg per head, up 3.5 kg per head from the previous year. However, affected by falling hog prices, both the segment’s operating revenue and segment performance declined. During the downturn in market conditions, the company strategically built up its production capacity. As of the end of 2018, its live pig breeding capacity had reached 4.089 million heads, an increase of 17.1% over the previous year, thereby enhancing economies of scale.
