WH Group: US Upstream Business Is Set to Turn Around

We retain our 2024 earnings forecast and fair value estimate of HKD 6.90 per share for narrow-moat WH Group after reviewing our assumptions ahead of the release of its second-quarter results. We project the US business to drive a turnaround in operating profit during the second quarter, given favorable industry conditions for the upstream segment, which should more than offset weaker profit for the packaged meat business in China. Our valuation implies 11 times 2024 price/earnings, 5 times enterprise value/EBITDA, and a 4.6% dividend yield. We see the current share price as undervalued, supported by an attractive dividend yield and a constructive outlook from downsizing the volatile US hog production business.