African swine fever (ASF) is having its most severe impact on the financial performance of Chinese companies hit by plunging prices, tight credit, lockdowns on pig shipments and culls of pigs, according to 2018 financial results released by the companies last month.
Chuying Agro-Pastoral may be the most prominent victim of what one writer has dubbed a "dragon head crisis." Chuying ran short of cash in November and asked bondholders to accept payment in hams, gift boxes and wine. The company has been accused of devoting too much of its cash flow to "high finance" and internet gaming. Chuying's latest estimate is a net loss of -1.9 to -3.3 billion yuan for 2018 after posting profits during the previous three years. The net loss was about 300-million yuan worse than the company had projected in its third quarter 2018 report.
Chuying Agro-Pastoral said sales were hurt by the lockdown of interprovincial swine movements imposed to prevent spread of ASF. Working capital dried up and loss of favorable prices from suppliers raised costs and prevented the company from getting timely supplies of feed. News media interpreted the lack of feed supplies to mean the "quite a few pigs starved to death." The company declared a 90-million-yuan capital impairment after company farms were demolished by local officials in Shantou City during the fourth quarter (presumably to comply with an environmental pollution remediation initiative).
Xinjin Nong, a supplier of pig feed, feeder pigs, and veterinary drugs, estimated its 2018 net loss at -240 to -290 million yuan, a sharp turnaround from its 2017 profit of 67.6 million yuan. Its third quarter 2018 report had projected a 20-to-40 million yuan profit. This company's swine sales plummeted 46 percent between the third and fourth quarters, and falling prices forced the company to reduce the value of the swine it still holds. Xinjin Nong's value is also impaired by potential bankruptcy by a downstream customer. Write-downs in company assets forced the company to put on hold a merger with a Hubei company.
Aonong Biological projects a reduction in 2018 profit of 58-to-72 percent attributed to impacts of ASF on sales and prices. The company had to write down 10 million yuan on its stake in a breeding farm in Jiangsu that had an ASF outbreak.
Fujian An Joy Foods, a maker of ingredients for hot pot meals, confirmed that meatballs produced by its subsidiary in Gansu Province tested positive for ASF. An Joy's stock price plummeted, reducing the company's market value by 600 million yuan. The company shut down pork operations to avoid risk of further occurrences due to the wide scope of sales, persisting problems among its hog suppliers and potential problems such as cross contamination in the production process.
Henan Shuanghui Investment Development was reorganized by merging with its parent company, Shuanghui Group. The company is part of a tangled web of holding companies and subsidiaries under WH International that also includes Smithfield Foods. After the deal, a company called Rotary Vortex will effectively control 73 percent of Shuanghui Development. Rotex, owned by Goldman Sachs and a prominent Chinese investment firm, issued additional shares to finance the absorption of Shuanghui Development. The company blamed four consecutive quarters of declining business income on falling hog prices and closure of its Zhengzhou processing plant for six weeks after ASF was detected in a load of pigs arriving at the plant in August. Shuanghui Development has also experienced leadership upheaval with the departure of several top executives in 2017.
On the other hand, shares of Hong Kong-listed Yurun Group--China's other leading pig butcher by volume--soared 29 percent after its chairman reappeared after four years under house arrest. Zhu Jiancai, once the richest man in Jiangsu Province, was believed to be under investigation for bribery and shredding accounting documents. He founded Yurun in the 1990s and expanded by taking over loss-making state-owned meat canneries and a string of 25 other slaughterhouses. Yurun is also engaged in real estate, shopping malls, banking, logistics, travel, and insurance.
Pig breeder Tangrenshen has not let false test results that initially reported ASF in feed manufactured by its subsidiary in eastern Anhui Province stop its expansion. Tangrenshen, confident in its ability to avoid ASF, is raising capital to expand its production capacity aggressively. Tangrenshen hopes that national policy will squeeze out small-scale pig farms and shut down interprovincial transportation of live swine as it eradicates ASF over the next 3-to-5 years. The company says it is building a million-head slaughter facility in Hebei Province, two 300,000-head propagation farms in Hunan and Henan, a 100,000-head native breed "black pig" farm in western Hunan, and a 1200-sow nucleus breeding farm in Gansu Province.
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