WH Group Earnings: US Downstream Business Drove Operating Profit Growth; Retain Fair Value

Narrow-moat WH Group’s second-quarter operating profit exceeded our estimate despite lower-than-expected sales in China. The US business remained the key profit growth driver for the quarter, consistent with our expectation, although the margin was better than anticipated. Meanwhile, volume sales for the China packaged meat segment were dampened by soft demand, but operating profit was in line with our forecast. We raised our 2024 net profit estimate by 10% with the profit beat and our 2025-28 forecasts are largely unchanged. We keep our fair value estimate at HKD 6.90 per share, implying 10 times 2024 price/earnings, 5 times enterprise value/EBITDA, and 5.2% dividend yield. The firm increased its interim dividend to HKD 0.10 per share from HKD 0.05 last year, which we view positively. We continue to see WH Group's shares as undervalued, with an attractive dividend yield of 6.8% at the current price.