China's Yurun to pump up pork brand

By Joseph Chaney

HONG KONG (Reuters) - China Yurun Food Group (1068.HK: Quote, Profile, Research, Stock Buzz), a leading Chinese meat processor, will seal three acquisitions by end-2007, building capacity and protecting profit margins despite rising hog prices and global concerns about the safety of Chinese-made food.

Yurun -- which translates roughly as "raining wealth and health" -- should be able to pass soaring pork prices on to end customers, Chairman Zhu Yicai, China's 24th-richest businessman according to Forbes in 2006, told Reuters on Thursday.

And Zhu said global perceptions about the hazards of Chinese products, after a series of scandals, were misplaced.

"I haven't read the international media reports on this issue," said the 43-year-old, who founded the group in 1993.

"The overall quality of Chinese products is good. But China is a developing country, and it's good that attention is being paid to this issue because it will pressure firms to improve."

Yurun will mostly acquire firms in the slaughtering sector, but Zhu did not disclose any price tags.

The pork processor vies with Henan Shuanghui Investment & Development Co. 000895.SZ and People's Food Holdings Ltd. (PPFH.SI: Quote, Profile, Research, Stock Buzz) to sell everything from frozen pork to processed meats such as ham, bacon and sausages to an increasingly wealthy and meat-consuming populace.

But Yurun is facing cost pressures as hog prices have risen after a blue-ear disease epidemic. Hog prices have climbed to 13-14 yuan per kg from 12 yuan per kg in May, Nomura says.

"We've been in this business for almost 15 years," Zhu said. "Because of our brand recognition, we can pass most of our cost increases to consumers and protect our margins."

The firm's shares soared 15 percent on Thursday, a day after it posted a near 50 percent rise in first-half net profit to 380 million yuan.

Yurun should book a near 25 percent rise in annual net profit to 611.36 million yuan in 2007, according to the mean forecast of 16 analysts polled by Reuters Estimates.

GRABBING THE MARKET

Optimism about soaring Chinese consumer demand persists despite recent food and product safety scandals, mainly because of the country's double-digit economic growth.

Pork consumption is likely to climb by as much as 0.7 percent for every 1 percent increase in income, says Macquarie.

Now, Yurun hopes to leverage its brand to grab a larger share of a fragmented hog-slaughter sector, where the top three processors account for less than 5 percent of the market.  Continued...