CPF’s 2H22 operations will turn around YoY from the huge 2H21 core loss to core profit despite the challenge from cost inflation, led by CTI’s turnaround, improved Vietnamese and Thai livestock units, shallower net loss in India and lower feed costs. Our TRADING BUY stands, premised on 2H22 core turnaround.
CTI’s turnaround on Chinese pork price rebound in 2H22
Due to the 31% recovery in Chinese pork price (from its recent low of CNY11.91/kg on Mar 21 to CNY15.62/kg on May 23) and the future Chinese hog price of CNY19/kg through YE22, we believe that it has left behind the year’s nadir in Mar 2022 before bouncing back in 2Q22 through 2H22. We expect the CTI to turn around in 2H22, given its cost of pork production of CNY16/kg. We attributed its price bounce in 2H22 to: 1) the reopening of more provinces or cities in China starting May following the strict zero COVID-19 policy and the anticipated removal of COVID-19 lockdowns in 2H22, which will boost Chinese pork consumption in 2H22, 2) cost-push impact from higher feed costs and 3) the further drop of Chinese sow herd. With the YTD mean of CNY13.5/kg and the assumed CNY20/kg in 2H22, we model the 2022 mean of CNY16.7/kg, down 17% YoY from CNY20/kg mean in 2021.