Securities code: Wellhope Foods Co.Ltd(603609) securities abbreviation: Wellhope Foods Co.Ltd(603609) Wellhope Foods Co.Ltd(603609)
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China Galaxy Securities Co.Ltd(601881)
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Reply to the letter on making preparations for the meeting of the issuance and Examination Committee of Wellhope Foods Co.Ltd(603609) public issuance of convertible bonds
Sponsor (lead underwriter)
March, 2002
About Wellhope Foods Co.Ltd(603609)
Reply to the notification letter of the preparatory work for the meeting of the issuance and Examination Committee for public issuance of convertible bonds China Securities Regulatory Commission:
According to the requirements of the letter on making preparations for the meeting of the issuance and Examination Committee of Wellhope Foods Co.Ltd(603609) public offering of convertible bonds (hereinafter referred to as the “notification letter”) issued by your association, Wellhope Foods Co.Ltd(603609) (hereinafter referred to as ” Wellhope Foods Co.Ltd(603609) ” or “the company”) has worked with China Galaxy Securities Co.Ltd(601881) (hereinafter referred to as the “recommendation institution”) Suya Jincheng Certified Public Accountants (special general partnership) (hereinafter referred to as “accountant”) has carefully checked, analyzed and explained the questions raised in the notification letter one by one. Now the relevant questions are replied as follows, please review.
Unless otherwise specified, the definitions of abbreviations or terms in this reply are the same as those in the prospectus for Wellhope Foods Co.Ltd(603609) public offering of convertible corporate bonds. The financial data and financial indicators quoted in this reply, unless otherwise specified, refer to the financial data in the consolidated statements and the financial indicators calculated based on such financial data. In this reply, if there are differences in the mantissa between the sum of some total numbers and each detailed number, these differences are caused by rounding.
1. Business performance in 2021
According to the performance express disclosed by the applicant, the net profit attributable to the shareholders of the listed company in 2021 was 1111857 million yuan and the net profit after deducting non recurring profits and losses was 1282215 million yuan, which was significantly higher than the net profit attributable to the shareholders of the listed company of 48.189 million yuan and the net profit after deducting recurring profits and losses of 606972 million yuan disclosed in the third quarterly report of 2021. (1) whether the applicant’s business performance has declined or deviated from the major business performance indicators in 2021, and whether the applicant has fully explained the reasons for the decline or major business performance indicators related to 2021; (2) In combination with the price fluctuation of pigs and meat and poultry in 2021, the change of procurement cost of piglets and chickens, the impact of the epidemic, the business environment and market demand of the industry, explain the reasons and rationality for the turnaround of losses and the sharp increase of profits in the fourth quarter of 2021, whether it matches the growth rate of income and the development of the industry, Whether it complies with the performance growth trend of comparable companies in the contract industry, and whether the performance growth in the fourth quarter is sustainable; (3) The performance forecast of Listed Companies in the contract industry, indicating whether the performance express data in 2021 is prudent and appropriate, and whether there is the possibility of significant downward correction; (4) In combination with the above, further explain whether it complies with the provisions of paragraph 1 of Article 7 of the measures for the administration of securities issuance of listed companies; (5) Combined with the performance changes and influencing factors in 2021, further explain the digestion measures and effectiveness of new capacity, whether the raised investment project will lead to idle capacity after it is put into operation, and the prudence and rationality of benefit calculation.
The recommendation institution and the applicant’s accountant are requested to explain the basis and process of verification and express clear verification opinions. reply:
1、 Further explain the reasons for the performance decline in 2021, whether there are significant adverse changes in the applicant’s core business, business environment and main indicators, whether the degree of performance decline is consistent with or deviates from the change trend of the industry, whether the relevant adverse factors causing performance decline have been eliminated, and whether the relevant risk tips are sufficient
(I) description of main factors leading to the decline of the company’s performance in 2021
In strict accordance with the relevant rules and requirements of the Shanghai Stock Exchange Listing Rules and other laws and regulations on performance express, the company issued the Wellhope Foods Co.Ltd(603609) 2021 annual performance express (hereinafter referred to as “2021 annual performance express”) on January 27, 2022. The company realized a net profit of 1111857 million Yuan attributable to the shareholders of the listed company in 2021 The net profit after deducting non recurring profit and loss is
1282215 million yuan, down 91.00% and 89.58% respectively compared with 2020, mainly due to: “the higher than expected decline in the price of pigs in China, combined with the rise in the price of feed products and other factors, resulting in the loss of the company’s pig breeding business; the cost of white feather broiler chicks and feed increased year-on-year, the consumption in the terminal market was poor, and the performance of the company’s white feather broiler sector decreased”.
(II) explanation that the influencing factors of major adverse changes in the company’s core business, business environment and main indicators have been gradually eliminated, and there is no continuous significant adverse impact on the operating performance
1. Explanation that the price rise of feed raw materials is not sustainable
Since 2020, the price of main feed ingredients such as corn and soybean meal has been rising continuously due to various factors, such as the New Coronavirus epidemic, the policy of purchasing and storage, and the harvest of main grain producing areas. The average price of corn in the first three quarters of 2021 was at a high level, but the fourth quarter showed a significant downward trend. As the impact of New Coronavirus epidemic on production activities in the world has gradually weakened, the grain production in main grain producing areas of various countries is also continuing to recover. According to the data of Wande information, the change trend of spot prices of corn and soybean meal in 22 provinces and cities in China in 2021 is as follows: (1) changes in corn prices
In 2021, the spot price of corn in China generally showed a downward trend. On December 31, the average price of corn was 262054 yuan / ton, a decrease of 9.86% compared with the highest price of 290715 yuan / ton in the year. From January to February of 2022, affected by the situation in Russia and Ukraine, the market was full of emotions in the short term, and the corn price rose slightly. However, in the long term, the corn price has been at a relatively high level in history. After the accidental factors are eliminated, the upward space is limited.
(2) Changes in soybean meal price
In 2021, the spot price of soybean meal in China also showed a downward trend. On December 31, the average price of soybean meal was 356943 yuan / ton, a decrease of 13.48% compared with the highest price of 412571 yuan / ton in the year. Affected by international uncertainties, international soybean prices have been rising since early February 2022. From February to March every year, South American soybeans are in a critical period of pod setting, and international soybean prices are usually easy to rise but difficult to fall.
In addition, as two major grain producing countries, the sudden disputes between Russia and Ukraine have also added uncertainty to the trend of soybean prices. In addition to cyclical changes, the price rise factors are greatly affected by accidental factors in the first quarter of 2022. In the long run, there is no room for soybean prices to rise continuously.
Generally speaking, the prices of main feed raw materials such as corn and soybean meal have been at a historically high position. Excluding accidental factors, there is limited room to continue to rise in the long run. In addition, the company’s procurement department works closely with the technology R & D team to actively develop low-cost homogeneous substitutes for various main raw materials, which weakens the impact of rising raw material prices on costs to a certain extent, while the product prices of the feed industry have strong transmission ability to the downstream, and the rising product prices will also offset some adverse factors of rising raw material prices.
2. Description of non sustainability of matters affecting the performance of the poultry industry
At this stage, China’s broiler breeding industry is still dominated by small-scale farmers. Small scale broiler farmers generally judge only based on the existing market conditions, which is easy to make short-term irrational decisions, resulting in sharp fluctuations in market prices. Therefore, under the market structure background that small-scale broiler farmers account for the main part of the breeding group and the degree of large-scale breeding is not high, the cyclical fluctuation of the industry is more obvious. In recent years, the scale of China’s broiler breeding industry has been increasing, and the market share of medium and large enterprises has been increasing. In the future, the development of the industry will gradually become rational, and the cyclical performance of the industry will gradually ease. According to the data of Wande information, the average price of China’s main white feather broiler production area was 6.78 yuan / kg on September 30, 2021, and the average price rose to 7.97 yuan / kg on December 31, 2021, an increase of 17.55%. The price of broiler products in the poultry industry further rebounded.
According to the first half year of 2021 and the second half year of 2022, the average price of white feather chicken market is one of the main products in the first half year of 2021 and 2022, according to the analysis report of white feather chicken production market, In the second half of 2021, the average price of the national market was 1.91 yuan / feather, a decrease of 50% compared with the first half of the year; The average market price of chicken chicks in 2021 was 2.87 yuan / feather, and the average market price in January 2022 was 1.08 yuan / feather. Compared with the whole year of 2021, the decline in January 2022 was 62%. The company’s chicken procurement cost continued to be significantly reduced, which greatly alleviated the profit pressure of the company’s poultry industry.
In addition, as the covid-19 epidemic situation tends to ease and end consumption continues to recover, the profitability of the company’s poultry industry will gradually improve.
3. Description of non sustainability of matters affecting the performance of pig industry
China’s pig prices and the profit level of pig breeding industry have strong cyclical fluctuations. About three to four years is a complete “pig cycle”, The specific manifestation of its cyclical fluctuation is: “increased profit of pig feeding (increased pig price) – increased feeding amount of farmers (increased sow stock) – increased supply of pigs (surplus) – decreased market price of pigs – decreased profit of pig feeding – decreased feeding amount of farmers, resulting in decreased stock (Large elimination of sows) – decreased supply of pig market (shortage) -Rising pig prices – increased profit from pig breeding “. At present, China’s pork price is in the stage of “decline in pig market price” in the “pig cycle”. Combined with the characteristics that China’s pig breeding industry is still dominated by small-scale farms and retail investors, practitioners in the industry have begun to enter the stage of “reducing the feeding amount of farmers and reducing the stock” to eliminate a large number of sows. Since the current round of African swine fever, relevant national departments have issued a number of measures to stabilize the cyclical fluctuation of pig prices. August 6, 2021, Ministry of agriculture and rural areas The opinions on promoting the sustainable and healthy development of pig industry issued by six departments including the national development and Reform Commission clearly “Market orientation and orderly development. We will give full play to the decisive role of the market and give better play to the role of the government. We will implement policies to stabilize the production and supply of pigs and stabilize long-term support policies, use more market-oriented methods to alleviate the fluctuations of the ‘pig cycle’, and strive to keep pork prices within a reasonable range”, “establish a counter cyclical regulation mechanism for pig production and maintain a reasonable stock level of fertile sows” “Improve the comprehensive emergency system for stable production and supply of pigs, build a modern pig breeding industry, implement pig breeding subsidy projects, and speed up the process of variety improvement” and other measures to further alleviate the impact of pig cycle changes on industry enterprises.
On October 10, 2021, the Ministry of Commerce, together with the national development and Reform Commission, the Ministry of Finance and other departments, once again launched a new round of central reserve of frozen pork in 2021. This is the fourth time that the central government started the pork collection and storage work in that year, with 30000 tons of pork traded through bidding. This collection and storage layout is stored in 12 provinces across the country. Leaders of the national development and Reform Commission said: “In the next step, the national development and Reform Commission will continue to closely track and monitor the changes in the replenishment of fertile sows, the release of live pigs and the trend of pork prices, and strengthen analysis, research and judgment; and will further study and take cross cyclical measures such as import regulation with relevant departments to promote the smooth operation of the live pig market. Relevant slaughtering enterprises and meat food processing enterprises will seize the favorable opportunity to replenish stocks in time Discuss the reasonable arrangement of production and operation of farms (households), make pre judgment decisions, and maintain the pig production capacity at a reasonable level. ” With the gradual emergence of the effect of collecting, storing and supporting the market, and the factors of booming pork consumption and sharp increase in demand in autumn and winter and two festivals each year, the price of live pigs has gradually picked up. In October 2021, the price of three yuan pigs outside China rebounded sharply and rapidly after reaching the bottom. According to the data of Wande information, the average price of pigs in 22 provinces and cities in China was 11.33 yuan / kg on October 1, and the average price rose to 16.30 yuan / kg on December 31, an increase of 43.87%.
No. 1 central document issued in 2022, “the CPC Central Committee and the State Council,” the first one to “do a good job of grain production and important Shenzhen Agricultural Products Group Co.Ltd(000061) supply”, (III) to ensure the supply of “vegetable basket” products, is the first to make a good job of promoting the key work of Rural Revitalization in 2022. “Intensify efforts to implement the mayor responsibility system of ‘vegetable basket’. Stabilize the long-term support policy for pig production, stabilize the basic production capacity and prevent the ups and downs of production…”. On February 28, 2022, the national development and Reform Commission said that it had started the collection and storage plan of the central frozen pork reserve in 2022 together with relevant departments. According to preliminary statistics, at present, Beijing, Jiangxi, Hubei, Chongqing, Yunnan, Shaanxi, Ningxia and other places have started the collection and storage, and other regions will also start it in the near future. The national development and Reform Commission will continue to work with relevant departments to regulate reserves, further strengthen the collection and storage when necessary, promote the smooth operation of the pig market, and guide local farms (households) to maintain the overall stability of pig production capacity and the normal rhythm of slaughter and supplement. In 2022, the successive introduction of national policies has played a strong role in supporting and guiding the long-term stability of pig production, stabilizing the basic production capacity of pork, and comprehensively preventing the ups and downs of production and market prices.
According to the data of boa Hexun’s analysis report on the pig market in 2021 and the analysis report on the pig market in January 2022, the number of fertile sows in China decreased by 9.72% year-on-year at the end of 2021 and 5.69% year-on-year at the end of January 2022. The production capacity of pig breeding industry continues to be reduced, and the pig price is expected to hit the bottom in the second half of 2022, The profits of the industry will also rise to the combined level
