Zhongpin raises cash for acquisition and expansion

Changge City, Henan Province, China: Zhongpin, a New York-listed pork processor is raising cash to fund expansion to tap growth in China’s pork market, by far the world’s largest.

The 5.53m share offering, equivalent to over US$100m at current market values, includes a tranche being disposed of by existing investors, with its investment bankers given an option to sell a further 830,000 shares. The group said that cash raised the sale will be used to help fund its expansion plans, which supported a 30% rise in revenues last year and are expected to drive similar growth in 2011 too.

“We intend to use the net proceeds… for general corporate purposes, including, without limitation, the construction of new processing and cold chain logistics facilities, as well as repayment of bank loans and working capital needs,” Zhongpin said in a statement.

The group also placed possible acquisitions on the agenda, in a Chinese pork sector in which it saw consolidation accelerating this year.

Zhongpin reported a 28% jump to $58.3m in earnings for 2010, and said its existing cash reserves and bank borrowings would be sufficient to finance capital investment budgeted at $143m over the next year.

Schemes already on the drawing board include a $63m production and distribution factory in Jiangsu province in east China, where operations are expected to begin this autumn, with a $58.5m plant in nearby Henan province, where the group is based, to be built in 2012. Xianfu Zhu, the group’s chairman and chief executive unveiled plans to “expand our production into other provinces”. The group said it “may also explore opportunities to acquire companies with strong regional brand recognition”.

Expansion would aim to build Zhongpin into a national brand, raise market share and “take advantage of consolidation opportunities in the meat industry in China”.

The sector faces conflicting dynamics of buoyant revenues from increasing consumption  – pork prices expected by Zhongpin to rise by 10-15% this year – and higher costs. Costs are increasing from the impact of higher grain prices raising the cost of rearing pigs and a government food safety drive, which aims to increase sales of refrigerated pork and cut the number of licensed abattoirs from 21,000 to 3,000 by 2015.

Zhongpin’s own sales rose 30% to $946.7m last year, with operating income up 22% to $52.9m. The group forecast a further rise of up to 30%, to $1.18-1.23bn, in sales this year, with earnings per share expected at $1.89-2.18, up from $1.65 in 2010. Analysts had expected earnings per share of $1.96 next year, and of $1.60 in 2010.

Zhongpin, Inc is a US publicly traded meat and food processing company that specializes in pork and pork products, and vegetable and fruits in the Peoples Republic of China.


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