1Q21 adj. NP fell 17% YoY to US$293mn, but rebounded 253% QoQ. US market resumed profitable in 1Q21 with US$181mn OP, vs US$49mn operating loss in 4Q20. COVID-19 related expenses sharply reduced from US$220mn in 4Q20 to US$38mn in 1Q21. We expect US market to have strong recovery in FY21E led by catering demand recovery, high hog futures prices and significantly decreasing exceptional expenses. WH is confident to cut COVID-19 related expenses from US$820mn in FY20 to below US$150mn in FY21E, and believes its FY21E US OP is in a good position to return to FY19 level. We forecast WH to post record high adj. NP in FY21E. Share price is 32% below record high on 1 Feb 2018. The stock trades at 9.0x FY21E P/E, below historical average of 11x. Maintain Buy on undemanding valuation.
- US market OP fell 20% YoY US$181mn. (1) Packaged meat: OP +24% YoY to US$194mn. Volume saw 4% YoY growth, the first time since the COVID-19 outbreak, on strong retail demand and fast-recovering catering demand. (2) Pork (hog production and fresh pork): OP fell 93% YoY to US$7mn mainly due to high raw materials cost like grains. US market recorded US$38mn COVID-19 related expenses, significantly lower than US$220mn in 4Q20. Management is confident to control COVID-19 related expenses within US$150mn in FY20E (vs US$820mn in FY20).
- China market OP grow 8% YoY to US$291mn. (1) Packaged meat: OP +16% YoY to US$220mn, led by 11% volume growth (partly due to late CNY holiday in 2021). OP/tonne rebounded to RMB3,600/tonne from RMB3,300/tonne in 4Q20. (2) Pork: OP fell 19% YoY to US$50mn. Number of hog processed rose 12% to 1.9mn as China’s hog inventory recovered. The OP decline was due to lower profitability from sales of frozen pork.
- FY21E outlook. (1) US market: Driven by demand recovery, sharp reduction in COVID-19 related costs and raw materials cost control measures, management believe US market is in a good position to get back to OP level in FY19. (2) China market: Management expects OP/tonne of packaged meat to increase steady underpinned by hog price decline. The Company will invest certain gain from hog price drop in marketing and share some gain to customers to increase sales volume. Also, the Company separated its catering business into an individual BU in 1Q21 to better develop packaged meat and offer tailor-made fresh pork to business customers.
Maintain Buy. We keep our FY21-23E estimates unchanged. Our SOTP-based TP was still at HK$9.60, representing 12.9x FY21E adj. P/E. Catalysts: (1) acceleration of vaccinations in US; (2) hog price drops in China.
