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Yurun sets out massive expansion plans

(China Daily/Agencies)
Updated: 2008-11-11 17:15

China Yurun Food Group Ltd, the country's biggest hog processor, will spend HK$4 billion to expand and acquire rivals, seeking to benefit from tighter regulations and a government stimulus plan.

The company plans to double capacity and has enough cash and loans to fund the expansion over the next two years, Chief Operating Officer Zhang Yuanfei said in an interview in Harbin city, northeast China.

China announced on Sunday a 4 trillion yuan ($586 billion) stimulus plan to revive growth in the world's fourth-largest economy amid the global financial crisis. Rising incomes in China has spurred consumption of meats and the government has introduced laws to reduce the number of hog processors.

"In longer term, it's sensible and essential for China Yurun to seek a bigger market share because the market is so fragmented and when the government policy is in favor of industry consolidation," said Renee Tai, a Hong Kong-based analyst at CIMB-GK Securities Pte Ltd. "The aggressive capital expenditure may put pressure on China Yurun's cash flow and balance sheet in the next two years."

China Yurun, based in Nanjing, rose 6.9 percent to close at HK$9.95 on Monday in Hong Kong trading, beating a 3.5 percent gain in the benchmark Hang Seng Index. China Yurun is partly owned by Goldman Sachs Group Inc and JPMorgan & Chase Co, according to an exchange filing in August.

China's economy grew at its slowest pace in five years in the third quarter. The government plans to spend 100 billion yuan this quarter from the stimulus package, boosting investment in housing, roads, railways and airports. It will also allow tax deductions for purchases of assets such as machinery.

"Household income is expected to continue to rise, though economic growth is slowing," Zhang said. "China is less affected than Western countries in this financial turmoil."

China Yurun buys pigs from farmers, kills the animals and processes the meat into chilled and frozen pork, and makes sausages and ham. In April, it announced plans to double its hog-slaughtering capacity to 30 million heads, and meat- processing capacity to 400,000 metric tons.

The proposed expansion will lift China Yurun's market share in hog-slaughtering to as much as 6 percent from about 1 percent.