News Alert: Potential spin-off of US business Smithfield Foods
- News reported WH Group’s plan to spin-off and relist Smithfield in the US in 2024 the earliest
- Expect re-rating potentials should the spin-off be successful
- Our current rating is BUY with TP of HK$5.49
Potential spin-off of Smithfield. News reported that WH Group is working on the spin-off and re-listing of its wholly-owned US business Smithfield Foods, as early as in 2024. Smithfield was acquired in 2013 by WH Group at US$4.7bn, equivalent to 13.3x P/E based on FY12 earnings. While WH Group told us that the company has been discussing on such relisting of Smithfield from time to time, there is yet a firm timeline for the spin-off.
Expect share price support to WH Group. Smithfield’s peers, Tyson (TSN US) and Hormel (HRL US), are currently trading at 16.5x and 18.7x FY24F P/E based on consensus while WH Group (including China, North America and Europe businesses) is now at an undemanding valuation of c.5x FY24F P/E based on our forecasts. According to our estimates, we expect US operations to contribute c.53% and c.40% (i.e., c.US$570m) to WH Group’s revenue and earnings, respectively in FY24F. We expect re-rating potentials on WH Group from the spin-off given the current valuation. While we are awaiting for more details, should we assume a 50% spin-off of Smithfield, benchmarking peer valuation in the US, this could add c.US$0.24/HK$1.9 per share (or 35%) to our current TP of HK$5.49. We maintain BUY.