Global Hunter Says Zhongpin Follows Strong Q4

In a report published by Global Hunter, Zhongpin HOGS follows strong Q4 with share insurance.

Global Hunter said that Zhongpin reported record Q4 and FY2010 results, exceeding consensus estimates and its prior full year guidance. “Operationally the company showed that it is benefiting from the ongoing capacity build out and the ability to pass through price increases to account for food cost inflation. On the earnings call, HOGS outlined a number of capex initiatives that should continue to drive revenue and net income growth in FY2011 and FY2012, but at this point we are concerned with the ability to grow EPS and free cash flow, as well as management's lack of focus on building shareholder value. We now expect the company to report 2011 revenues of $1.2 billion and EPS of $1.79, indicating minimal EPS growth for the second consecutive year and facing yet another year of negative free cash generation. We remain positive on the Chinese agriculture and food processing industries as a whole and do not mean to discredit Zhongpin's efforts to become the largest pork processor in China. However, we are merely concerned with shareholders' ability to generate incremental value in the process as empire building does not tend to benefit the shareholders whose backs and capital it is built upon. Despite the strong quarterly results we feel that investors are likely to see minimal potential EPS growth over the medium term, which will likely lead to multiple contraction as the stock currently trades at a premium to the majority of the US-listed China peers. As a result, we are downgrading our rating to Reduce and we recommend investors use any strength in the share price to exit positions, looking to reestablish positions when the valuation becomes compelling again.”

Zhongpin closed yesterday at $17.48.