What you need to know about China Yurun's sluggish performance in 2012

It has an adjusted net loss of HKD1.5b.

According to Maybank Kim Eng, Yurun reported a disappoint set of FY12 results last Friday, as its adjusted net loss of HKD1.5b missed its estimates, which were at Street lows, by 11% due to a worsening GPM squeeze HoH in 2H12.

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The key positive was an improvement in sales volumes and profitability of key category LTMP, as Yurun expanded sales to high-end hotel and restaurant chains.

A major negative though was the sluggish profitability of the upstream segment due to industry oversupply; for example, the gross margin frozen pork remained in the negative low teens amid intense competition.

Nonetheless, we reckoned some good positive key takeaways from the management, including:

i) Significant capex cuts in FY13 positively surprised us, as more focus can be put on improving its utilisation rate as a result. Yurun believe its target of attaining a 10% share of the slaughtering sector can be achieved in FY16 against the original FY15 timeframe;

ii) Management also reassured us that its new downstream capacity will commence operations in phases depending on market conditions in 2H13, to avoid creating a potential glut; 

iii) Yurun indicated it would reduce the portion of generic products it will sell in upcoming years, by launching more innovative products;

iv) number of slaughtering plants declined by 26% YoY to 14,720 nationwide in 2013, and more are expected to be closed by the government’s 2015 deadline.