WH Group Earnings: U.S. Business Remains a Drag; Reducing Fair Value to HKD 6.90 From HKD 7.40

Narrow-moat WH Group posted another quarter of sluggish results that missed our expectations, due to lackluster performance across the upstream and downstream segments in the U.S. We reduce our fair value estimate to HKD 6.90 per share, from HKD 7.40 per share, with lower profit assumptions. Management reiterated the intent to reduce its low-margin and loss-making hog production exposure in the U.S. But there were no specific updates on the progress or actions to be taken for this business. We think it would take time for the company to spin off its upstream assets given the unfavorable operating environment. Hog prices have been dropping as production bottlenecks normalized in the wake of the pandemic in both the U.S. and China. We think WH Group’s near-term share price is likely to face headwinds as investors focus on the weak earnings outlook.