Recently, Henan Shuanghui Investment Development Co., Ltd. (hereinafter referred to as "Shuanghui Development") released its semi-annual report for 2024, achieving operating income of 27.593 billion yuan, a year-on-year decrease of 9.31%; net profit was 2.296 billion yuan, a year-on-year decrease of 19.05%.

This marks the third consecutive reporting period where Shuanghui Development has seen a decline in both revenue and net profit.

The 2023 annual report showed that Shuanghui Development's revenue was 59.893 billion yuan, a year-on-year decrease of 4.29%, and the net profit attributable to the parent company was 5.053 billion yuan, a year-on-year decrease of 10.11%.

In the first quarter of 2024, Shuanghui Development's revenue was 14.308 billion yuan, a year-on-year decrease of 8.92%; net profit attributable to the parent company was 1.272 billion yuan, a year-on-year decrease of 14.54%.

The continuous downturn has led to a decline in the stock price of this meat product consumption giant, which once had a market value of 200 billion yuan.

Faced with the sluggish consumer market and intensifying competition in the meat product industry, Shuanghui Development is not only struggling with the growth of its main business but also facing various issues such as increasing debt and declining turnover, all of which have become obstacles that Shuanghui Development needs to overcome on its path forward.

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Despite the decline in revenue, Shuanghui Development did not forget to distribute dividends.

Shuanghui Development's business now covers every link in the meat industry chain, including feed industry, breeding industry, slaughtering industry, meat product processing industry, foreign trade industry, and so on.

Among them, the main business is meat products and slaughtering industry, accounting for 44% and 52% of the revenue in 2023, respectively.

The most important meat product business contributed 80% of the gross profit and is the main source of the company's profit.

The decline in revenue and profit of the main business also directly led to the weak performance of Shuanghui Development.

In the first half of 2024, Shuanghui Development's meat products achieved an operating income of 12.373 billion yuan, a year-on-year decrease of 9.64%.

The slaughtering industry achieved an operating income of 13.325 billion yuan, a year-on-year decrease of 16.14%.

Faced with the decline in total profit, Shuanghui Development stated that the main reason was the low market prices of fresh pork products and poultry products, leading to a decrease in product gross profit.

However, pork prices actually began to rebound in the second half of last year, but Shuanghui Development's sales have been slow to improve.

Moreover, the semi-annual report data shows that the number of distributors of Shuanghui Development in the first half of the year compared to the beginning of the year decreased by 455, a drop of 2.56%, of which the decline in the area south of the Yangtze River was 4.53%.

Regarding the reason for the decrease in the number of distributors, Shuanghui Development stated that it was mainly due to the fierce low-price competition in some channels of the fresh product industry.

The company controlled the sales of channels with low gross profit and poor operating results, and the number of distributors in the fresh product industry in the first half of 2024 decreased year-on-year.

In other words, Shuanghui Development can no longer participate in the price war for fresh meat.

Another manifestation of Shuanghui Development's "difficulty in selling" is the decline in inventory turnover rate.

The semi-annual report data shows that the company's inventory turnover rate in the first half of the year was 2.93 times, a year-on-year decrease of 19%.

The 2023 annual report shows that the inventory amount last year reached 8.267 billion yuan, an increase of 46% compared to 2021.

The inventory depreciation loss and the impairment loss of contract fulfillment cost reached 447 million yuan, a year-on-year increase of 69.31%.

Although there is no improvement in business, Shuanghui Development is keen on high dividend distribution.

Along with the semi-annual report, the company's dividend plan was also released, proposing to implement profit distribution at a ratio of 6.6 yuan (including tax) per 10 shares, with a total distribution of 2.287 billion yuan, and the dividend payout ratio is close to 100%.

In recent years, Shuanghui Development's dividends have basically exceeded the total profit.

From 2020 to 2023, the company's dividend amount reached 23.101 billion yuan, exceeding the total profit of the company during the same period, and the dividend payout ratio was nearly 106%.

The market also has disputes about this, because the first largest shareholder of Shuanghui Development, Rotex Limited, is wholly controlled by Wanshou International, and the person behind Wanshou International is the chairman of Shuanghui, Wan Long.

So, the large amount of dividends from Shuanghui Development ultimately returned to the pocket of the actual controller, Wan Long.

The annual report shows that as of the end of 2023, Shuanghui Development's monetary assets were 2.834 billion yuan, a decrease of nearly 3 billion yuan compared to the same period of the previous year; the balance of short-term borrowings was 5.983 billion yuan, an increase of 2.836 billion yuan year-on-year, and the balance of long-term borrowings was 962 million yuan, an increase of 952 million yuan year-on-year; the asset-liability ratio was 42.34%, an increase of 3.26 percentage points year-on-year.

Although the money-making business is not strong enough, Shuanghui Development is very good at "spending money".

In terms of its own business, Shuanghui Development has also been exploring new growth points in recent years, including upstream breeding industry (pig breeding, meat chicken industrialization) and pre-cooked food.

In 2020, in order to invest in the breeding industry, Shuanghui Development carried out a non-public placement, raising funds of 7 billion yuan.

Among them, 99 million yuan was invested in the pig breeding capacity construction project, 3.33 billion yuan was invested in the meat chicken industrialization capacity construction project, and 75 million yuan was invested in the China Shuanghui headquarters project.

Now these two major production projects have been completed, but they have not yet been able to help the performance.

Data shows that in the first half of 2024, the other business sectors including the breeding business achieved a revenue of 4.332 billion yuan, a year-on-year increase of 6.19%, but the gross profit margin was -0.73%.

The "pig breeding capacity construction project" and the "meat chicken industrialization capacity construction project" failed to achieve positive returns due to low capacity utilization, market consumption not meeting expectations, and low prices of chicken and chicken products.

In addition, Shuanghui Development has always been very generous in acquisitions.

In 2013, it once spent 7.1 billion US dollars to acquire Smithfield, becoming the largest international acquisition case of that year.

After the acquisition, Smithfield also became a related transaction party and supplier of Shuanghui Development, selling fresh and frozen meat to Shuanghui through its parent company Rotex Limited.

This acquisition also opened up the fast track for Shuanghui Development to enter the capital market.

In 2014, Shuanghui International went public in Hong Kong, changed its name to Wanshou International, and now has two major listed platforms, Wanshou International and Shuanghui Development.

In 2019, Shuanghui Development completed the absorption and merger of Shuanghui Group.

Shuanghui Development became the only meat platform of Wanshou International in China.

Rotex Limited held 25% of the shares of Shuanghui Development through this merger, and indirectly held 35.715% of the shares of Shuanghui Development through Shuanghui Group, now holding 70.33% of the shares of Shuanghui Development.

The relationship between the three companies is very complicated, which has also led to a large amount of related transactions in Shuanghui Development in recent years.

The related transaction amount with Rotex and its subsidiaries in 2020 once reached 12.084 billion yuan, and from 2021 to the first half of 2024, the related transaction amounts were 9.321 billion yuan, 6.2 billion yuan, 6 billion yuan, and 2.88 billion yuan, which are still not small amounts.

The Shenzhen Stock Exchange also inquired about this situation.

According to the latest news, Wanshou International is going to cultivate a new IPO, and plans to split off the business of Smithfield Foods Inc., which operates in the United States and Mexico, and prepare to go public in the US stock market, with a planned fundraising amount of 1 billion yuan.

Wanshou International is mainly divided into domestic business (Shuanghui Development as the main body) and US and Mexican business (Smithfield as the main body).

In the past, Wanshou International had a situation where revenue depended on the United States and profit depended on China.

From 2021 to 2023, the proportion of domestic business revenue gradually decreased from 38.5% to 33.3%, and the profit contribution increased against the trend, from 47.3% to 64.4%.

On the contrary, although the proportion of US business revenue remained high at 52% to 54%, the profit proportion has significantly declined, from 46.7% to 22.4%.

This situation of domestic business delivering profits is likely to have a chain effect after Smithfield is split off and listed, which will further affect the future layout of Shuanghui's industry.