Zhongpin, Inc.: High on the hog

Zhongpin Inc. (Nasdaq: HOGS)
Changge City, People’s Republic of China
http://www.zpfood.com/
 
52-week low / high: $6.75 / $15.10
Shares Outstanding: 23.58 million
Market Capitalization: $315 million

If recent market jitters have had you sweating like a pig, than you may as well in invest in one . . . or 721 metric tons of some. Zhongpin Inc. (Nasdaq: HOGS), a meat and food-processor in the People’s Republic of China, has the potential to give investors a solid chance to reap what they sow. 

China has the highest pork consumption rate in the world. And with the U.S. Department of Agriculture estimating the hog market in China to be worth $32 billion annually, Zhongpin is cashing in on the chow. While the company operates in two business segments — pork and pork products, and vegetables and fruits — pork is its paramount pursuit.

The pork and pork products segment mainly processes live market hogs into fresh, frozen and processed pork products. The segment consists of over 200 meat products, including chilled pork, frozen pork, pig by-products and prepared meats that are sold on a wholesale basis and retail basis. Zhongpin markets the pork products in China to its branded stores, food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments, including schools, hotel chains, health-care facilities and the military.

The company has eight processing plants in China and a total of 13 production lines with a combined processing capacity of about 721 metric tons per eight-hour working day, or about 259,560 metric tons on an annual basis, translating to a whole lot of hog.

In the third quarter of 2007, reported on Nov. 13, 2007, Zhongpin's revenues more than doubled year-over-year to a record $71.3 million, while gross profit increased 87.6% to $9.7 million and net income leapt 122%, reaching a record $5.9 million, or $0.25 per fully diluted share.

The small cap attributed the strong revenue growth to its market expansion and an increase in the price of pork products in China.

Going forward, Zhongpin is planning for an even bigger slice of the pie with acquisitions and the establishment of new facilities in China aiding its pork production capacity.

Brean Murray analyst Alex Xu initiated coverage on the stock in early January, with a “buy” rating and an $18 price target, which he reiterated later that month.

The firm said Zhongpin appears to be positioned to benefit from the "growing Chinese middle-class population that demands high-quality meat products," and its clean balance sheet will help it gain "significant market share through organic expansion and acquisitions in the highly fragmented meat market." The firm expects Zhongpin to grow earnings at about 25% until 2010.

Hungry investors should keep an eye on this stock, as it has the probability of pacifying many piggybanks.

Note: Zhongpin Inc. (Nasdaq: HOGS) is on the “Watch List” of Growth Report, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, Zhongpin displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Growth Report portfolio at a later date.

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