WH Group - the world's largest pork processing company - has started a big share buyback involving about 13% of its total market value. The move sent the company's shares up by the most in more than a year during Monday trading.
The company will buy back up to $1.9 billion worth of its shares because it has excess equity. The move has been viewed positively by market participants because most companies in Asia are hoarding cash given the state of the world economy.
The China-American company said it was willing to buy back issued shares at HK$7.80 each. This represents a 17.3% premium over the stock's closing price last week. On Monday, the stock price rose by more than 11% to HK$7.54 a share in Hong Kong - its biggest intraday gain since March 2020.
Like other pork product makers, WH Group suffered losses in 2019 and 2020 owing to the spread of African swine fever. The epidemic sent the company's valuation to a subdued average 10 times forecast earnings over the past two years. Last year, the company's earnings before interest, taxes, depreciation and amortization was more than twice its net debt.
WH Group's buyback comes as hog companies have been on a retreat since the coronavirus pandemic. Decreasing pork prices because of the swine fever and higher feed costs owing to tight world supplies have cut into margins.
Analysts said the buyback was a reasonable move for the company because it might increase its earnings per share by around 10% in the near term.
"The share buyback is a positive move from the company to support its stock price and return retaining profit to shareholders," analysts at Jefferies group said.
WH Group remains positive about its prospects in the coming quarters. The company said it will increase its meat imports this year as more economies recover from the pandemic. The company said pork prices in the U.S. and China will recover during the second half of the year as supplies expand.
"This massive proposed share buyback is intended to enhance shareholders' value, rather than privatization of the company. Fundamentally, we anticipate its U.S. business to sequentially recover quarter-on-quarter, and its China business to continue with steady growth," analysts at Citigroup Inc. said.