CICC: Maintains target price of HK$8.56 for WH Group (00288) and maintains "outperform" rating.

CICC's research report stated that WH Group (00288) is expected to maintain a core net profit attributable to mothers of 16.14/16.83 billion US dollars in 2025/2026. The company trades at 8.1/7.8 times the 2025/2026 P/E; with a target price of 8.56 Hong Kong dollars per share, corresponding to 8.7/8.4 times the 2025/2026 P/E and a potential upside of nearly 7.8%, maintaining an outperform industry rating. The bank expects WH Group's comparable 2Q24 operating profit to see a low double-digit increase year-on-year (excluding the impact of government subsidies in the 2Q24 US business), in line with market expectations. Key points from CICC are as follows: China Business: The bank expects meat product sales to stabilize in 2Q25, and a significant reduction in losses in the breeding business. 1) Meat Products: The bank forecasts a stabilization in sales volume in 2Q25, with ton profit expected to improve compared to the previous year due to cost reductions. According to national supermarket data from April-May 2025, the meat products industry's GMV decreased by 3% year-on-year, with WH Group's GMV down by 1%. 2) Breeding Business: The bank estimates further reduction in losses in the domestic breeding business in 1H25, mainly due to lower feed costs and internal efficiency improvements. 3) Slaughter: The bank expects the slaughter business in 2Q25 to face some pressure year-on-year due to the higher profit base in the same period last year. US Business: The bank expects improved profitability in comparable meat product operations (excluding the impact of government subsidies in 2Q24) and a year-on-year improvement in breeding business profitability. 1) Meat Products: The bank predicts a slight increase in sales volume and ton profit in 2Q25 year-on-year, with the improvement in ton profit expected to be related to internal efficiency improvements. According to USDA data, pig prices in 2Q25 rose by 16% year-on-year and 20% month-on-month, and the bank estimates that the company will cope with the pressure through optimizing product structure and raising prices for some products. 2) Pork Business: Due to strong demand for animal protein and rising prices for other meat proteins such as beef, pig prices have risen year-on-year in 2Q25, leading to an improvement in breeding business profitability. 3) Slaughter Business: The bank estimates strong domestic and import demand in the US to support the difference in pork prices, with the USDA reporting a year-on-year increase of 10.3% in pork prices. 4) Note on the impact of government subsidies in US business in 2Q24. According to company announcements, the US business received a total of $87 million in government subsidies in 2Q24, aimed at providing employee retention loans to qualifying employers to pay employee wages during the 2020 pandemic. The bank excludes the impact of government subsidies in 2Q24 and considers it as a comparable operating profit measure. Europe Business: The bank expects profitability in 2Q25 to continue the year-on-year growth trend. The bank expects the meat product business to maintain steady growth, mainly due to internal efficiency improvements and product structure optimization. The bank predicts that the overall profitability of the pork business in 2Q25 will remain stable compared to the same period last year. Risk Warning: Significant fluctuations in US pork prices and breeding costs, relatively weak domestic demand for meat products, and food safety risks.