The company that we have chosen for our analysis is People’s Food Holdings Limited. Our analysis of the company consists of two main parts: fundamental analysis and technical analysis. For fundamental analysis, we have done an analysis at the country, industry and company level. While for technical analysis, we have made use of several trading rules to verify our findings in the fundamental analysis, that is to access if the stock should be bought, sell or held. But before we proceed with the fundamental analysis, it is important that we first have an understanding of the background of People’s Food Holdings Limited.
1. Company Profile
People’s Food Holdings Limited was incorporated in Bermuda on 31 August 2000. It was listed on the SGX Mainboard 7 months later on 14 March 2001. Besides being listed in Singapore, it is also listed in Hong Kong.1 People’s Food Holdings Limited is the holding company of Loampit, Linyi Xincheng and Champ Base. At present, the Group has four production plants in four different provinces, namely, Shandong, Hunan, Sichuan and Inner Mongolia and recently, the Group has acquired a fifth plant in Daiqing, Heilongjiang Province. The Group produces meat products such as ham and sausages, primarily for consumption in China under its “Jinluo” brand. The brand is among the top 10 brands in China for meat products. At present, the Group has an energetic and dedicated workforce of over 4,300. In 2000, the Group achieved sales of RMB3.2 billion. 2
The Group’s business mainly involves the production and processing of frozen pork and frozen chicken, high-temperature meat products, low-temperature meat products, and fresh pork. However, the Group does not rear pigs and chickens and instead it obtains its supply of live pigs and chickens from third party suppliers. Its distribution and retail networks p the entire country, comprising of more than 400 major authorized dealers, 42 sales offices, and 20 dedicated retail shops currently operating in a number of major cities.3
The Group has production lines for high-temperature sausages and low-temperature meat products as well as pig slaughtering and dismembering lines, which were imported from Japan, Germany, and the United States.4 The Group ranks first in terms of processing capacity, and the output and sales of its meat products are one of the largest of the industry in China.
The Group’s mainstay products include high-temperature sausages, low-temperature meat products, fresh pork and frozen pork, pork cuts and chicken cuts, which are highly salable in more than 180 major cities in China. Some of its products are also exported to Hong Kong, Macau, and Southeast Asian countries. Its “Jinluo” branded products have received nationwide prestigious awards and accolades, such as “Famous Brand Products in the PRC”, “The Best Selling Sausage in the PRC for 2000”, “The Most Number of Pigs Processed in the PRC for 2000”, and “Top 10 Brands in the PRC for Meat Products for 1999-2000”.
The Group’s performance over the past few years have demonstrated its impressive record of product innovation and its ability to meet consumers’ changing needs, thereby resulting in a healthy profit growth. The early years of the 21st century will see the Group consolidate its position as a leading nationwide provider of meat products in China through geographical expansion and continual innovation in products, packaging, and marketing.
1.1 Management Philosophy The management’s mission is to establish “Jinluo” as a national brand widely recognized and admired for its high quality, good tasting and nutritious products. Meat products that bear “Jinluo” brand name represent an ongoing dedication to quality and value–a commitment established by its founders. The quality of its meat products has always been the key success factor for the Group. Its production bases manufacture products under the highest quality and hygiene standards.
In addition, the Group’s R&D division consistently develops new products on its own and in cooperation with reputable academic institutes or universities to meet the demands of its customers. Ideas for these products are generated from several sources, including market research and customer feedback. Prototypes are developed and evaluated for taste, visual appeal and nutritional composition before being launched. The development of each new product is followed by the application of the most stringent parameters for quality.
“Jinluo” branded fresh pork is produced in its low-temperature and bacteria-free workshop. During the course of processing, storage, transportation, and distribution, its fresh pork is kept under 2-5 degrees Celsius at all times.6 In the above process, the glucose in fresh pork is transformed into lactic acid through acid discharge, which makes its fresh pork more nutritious and tasty and easier to be digested by human beings.
1.2.2 Low-Temperature Meat Product Series Low-temperature meat products are processed with heat treatment at lower temperatures, and are stored and distributed under cold storage conditions, ideally at 0-4 degrees Celsius7, which ensures a better color, smell, and taste. 1.2.3 Premium Sausages Series “Jinluo” branded premium sausages are processed with advanced formula and techniques, using chilled fresh lean pork as the main ingredient. The content of fresh lean pork in the premium sausages series is over 90%8. This premium sausages series are ideal choices for banquets, travel and gifts.
1.2.4 Sausages Series “Jinluo” branded sausages are processed with advanced equipment acquired from Japan, using quality fresh pork produced by the Group. These sausages, which are tasty and convenient for consumption, are rich in vegetable proteins, various vitamins, and inorganic salts. Since launched in the market, these products have been widely accepted by the consumers and have received many nationwide awards and accolades.
1.2.5 Frozen Pork Product and Frozen Chicken Meat Products These products contain approximately 150 varieties and 300 kinds of specifications, which are well sold to more than 180 big and medium-sized cities in China.91.3 Sales Network 1.3.1 Retail Shops In January 2000, its first retail shop selling “Jinluo” products was opened in Linyi. At the end of 2000, another 19 retail shops had been opened in various cities in China, including Shanghai, Beijing, Shenzhen and Qingdao. Its retail shops distribute mainly fresh pork and low-temperature meat products. These retail shops are either owned by the Group or by its franchisees. On the other hand, its high-temperature meat products are sold primarily through its dealership network. The retail shops will become a major marketing channel for new products introduced in the future. Its goal is to have 300 retail shops opened by the end of 2001.
2. Country Analysis of China With a brief understanding of the background of People’s Food Holdings Limited, we will proceed to look at the country analysis of China since China is the country in which all of the Group’s operations are based. For statistics on economic structure, income and market size of China, please refer to Appendix A. For other important indicators, please refer to Appendix B at the back of the report.
2.1 Global Economy 2.1.1 Exchange Rates The Renminbi is pegged to the US dollar. Little movement in the exchange rate is expected, other than the anticipated fall in the value of the US dollar recently. The Renminbi is unlikely to fluctuate much and to fall outside the current band of trading, as China enjoys strong FDI inflows and a large current-account surplus. 2.1.2 Conflicts The tension between China and Taiwan has been an ongoing issue. Although it is not extremely intense at present and does not appear to affect businesses in the immediate term, there is a need keep in check the situation and regularly be updated on its impact on the economy.
2.1.3 Globalization and the Impact of WTO China opening its doors to globalization and its entry into the World Trade Organization (WTO) will result in more opportunities as well as increased competition in the domestic market. Foreign goods can now enter into the domestic market with fewer restrictions. Similarly, China’s exports now have an easier access to overseas markets. The threat to domestic companies is not that severe because even after entry into the WTO the government will be able to find ways of protecting local companies from foreign competition, for example through the imposition of high capital requirements for foreign firms entry into China.
In addition, the government is now committed to implementing a comprehensive programme of economic reform according to a set timetable. This is required by the WTO so that in the event where China’s trade partners are dissatisfied with the restructuring, they can appeal to the trade body’s dispute resolution mechanism, which has the power to impose penalties on countries that fail to honor WTO-related commitments. The successful restructuring of the domestic economy will lead to a boost in the growth of the economy.
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