CITIC International expects WH Group's sales leverage and product price increases to boost profitability, raising the target price to 9.2 yuan

Jianyin International published a report stating that WH Group (00288.HK) delivered resilient third-quarter results, with revenue increasing by 7.9% year-on-year and operating profit rising by 1.8% year-on-year. Strong sales momentum is underpinned by a robust 10.2% growth in pork sales, due to effective expansion of sales channels in China; the packaged meat segment saw stable revenue growth of 5.1%, benefiting from price increases in the US and Europe. However, the operating profit margin compressed by 0.6 percentage points to 9.4%, primarily due to rising raw material costs in the US, a reduction in employee retention tax credits, a shift in China's packaged meat portfolio towards more cost-effective products to better meet consumer needs, and a decline in European pig prices affecting upstream profitability.

The firm indicated that it is not overly concerned about the future compression of WH Group's operating profit margin, as the company will continue to push for price adjustments and cost discipline. The firm expects the company's revenue to grow by 5.8% in the fourth quarter, with the operating profit margin contracting by 0.2 percentage points to 8.4%, mainly due to enhanced marketing efforts in China and the launch of a wider range of cost-effective products, accelerating scale expansion, and high costs in the US. However, the firm anticipates that the company's overall operating profit margin will gradually improve next year, benefiting from sales leverage and price adjustments in US and European packaged meat.

Jianyin International has raised its core profit forecasts for WH Group for this year and next by 2.4% based on sales growth outlook, increasing the target price from 9 HKD to 9.2 HKD, and maintaining an "Outperform" rating