March 9, 2023


Zhengbang: Has aggressive expansion got the better of a major pig producer?

An eFeedLink Hot Topic


Last January, Zhengbang Technology warned the company faced the risk of delisting.


Back in November, the company announced that it would sell two pig farms located in Laibin, Guangxi, to Twins Group, the latest in the number of its assets being put on sale.


Before these developments — and China's African swine fever outbreak in 2018 — Zhengbang once aimed to achieve a slaughter volume of 100 million pigs by 2020. In the period following the outbreak, huge profit margins tempted many pig companies, including Zhengbang, to expand aggressively. In 2019, the company's hog sales revenue was almost equal to that of its feed business. By 2020, its hog sales contribution to the revenue ratio reached 70.85%, significantly overtaking its feed business's percentage (27.76%).


Zhengbang's sales volume of live pigs was projected to expand from below 20 million in 2021 to 40 million in 2022 and then to 60 million in 2023. However, as the pig slaughter volume surged in 2021, pork supplies exceeded demand.


And then Zhengbang's performance ran into trouble.


In the same year, Zhengbang's net deficit reached ¥‎18.819 billion. Later, in the first three quarters of 2022, it lost another ¥7.644 billion. In less than two years, it suffered a total loss of ¥26.4 billion, forcing the company to liquidate its assets.


2021 was a tough period for Chinese hog companies following two years of over-zealous expansion in the industry. Aggressive expansion was the path Zhengbang had also taken, perhaps due to the high profits from rising pork prices it previously enjoyed. The company implemented a "grab four" strategy to obtain four resources: sows, piglets, pig pens and capital.


With Zhengbang's growth, its total liabilities and asset-liability ratio also soared, starting in 2021.


Unfortunately, market conditions changed and turned against Zhengbang. As the price of pork started to drop sharply, the company was hit with heavy debts and losses.


By the end of June 2022, Zhengbang's asset-liability ratio reached 102.88%, meaning the company is already insolvent. By September, its asset-liability ratio increased to 113.82%, a sign of Zhengbang's mounting financial pressure.


To alleviate its debt crisis, Zhengbang started selling assets to stay afloat. Unfortunately, there are not many options for Zhengbang:

bankruptcy and restructuring might be the best option for the second-largest pig producer in China.


- Shi Tao, eFeedLink