Bloomberg News

China Yurun Gains on Speculation Pork Producer Fell Too Much

June 28, 2011

June 29 (Bloomberg) -- China Yurun Food Group Ltd., the country’s second-biggest listed meat processor, rose the most in three months in Hong Kong trading today as some investors speculated a recent plunge has been excessive.

The pork producer’s stock climbed as much as 9.4 percent, the biggest intraday gain since March 30, to HK$21.20 before trading at HK$20.35 as of 10:42 a.m. in Hong Kong. The advance made it the third-biggest gainer on the city’s Hang Seng Composite Index.

Yurun slid 31 percent over the four days through yesterday, wiping about $2 billion off its market value, amid speculation Muddy Waters LLC may issue a negative report on the company. The stock’s 14-day relative-strength index, which measures how rapidly prices have advanced or declined, was at 22 percent yesterday. Some investors see a reading of less than 30 as a signal to buy.

“People realize the rumors are gradually fading away and the company is doing a reasonable job in terms of the fundamentals,” Jessie Guo, a Hong Kong-based analyst for Jefferies Group Inc., said in a phone interview today. “The valuation doesn’t reflect the fundamentals. That’s the main reason for the share-price rebound,” said Guo, who recommends buying the stock.

Short Selling

Yurun slid 5.9 percent to close at HK$19.38 yesterday, the lowest level in 19 months after short-selling volume quadrupled to 21.8 million shares on June 27 compared with June 21, according to Bloomberg data. Yesterday’s short selling amounted to 20.7 million shares, the data show.

Muddy Waters, the Hong Kong-based short-selling company whose allegations of accounting irregularities sparked selloffs at Chinese companies including Sino-Forest Corp., wouldn’t say whether it was working on a report about Yurun.

“We take pains to keep our research activities confidential, and a widespread market rumor would either represent a significant failure on our part, or is false,” Carson Block, a Muddy Waters founder, said yesterday in an e- mail.

Yurun’s gross profit margin had a “slight decrease” in the first five months of this year, according to a filing to Hong Kong’s stock exchange yesterday. Sales gained “significantly” in the period up to May 31 compared with 2010 on higher hog prices and greater slaughtering volume, it said.

The company’s profit has grown eightfold to HK$2.7 billion in the five years through 2010 on sales that have increased fivefold, according to data compiled by Bloomberg.

Yurun is China’s second-biggest listed meat processor, trailing Henan Shuanghui Investment & Development Co., according to data compiled by Bloomberg.

--Editors: Frank Longid, Douglas Wong

To contact the reporter on this story: Michelle Yun in Hong Kong at myun9@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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