The China Perspective recently interviewed Yuhe International’s (NASDAQ: YUII) CFO, Mr Vincent Hu, about Yuhe’s market opportunities and challenges in China’s expanding poultry sector.
TCP: YUII is the market leader for one day old broilers in Shandong province and 90% of your broilers are sold in Shandong how much more room for expansion do you see before YUII will have to start looking to other provinces and regions for growth?
YUII is the second largest supplier of day old broilers in Shandong Province and China. Since we currently have a 5% market share in Shandong in 2009, we believe there are significant market opportunities for us to expand. We already distribute our products in ten province and special municipalities.
We have established very strong marketing, pre-sales, and after sales processes in Shandong. Through these interactions within the industry and across the marketplace, we leverage our resources to analyze the whole supply chain of the broiler business in the region, enabling us to adjust our operations accordingly. As a result, we are able to meet our customers’ demands more efficiently.
TCP: YUII purchased 175,000 breeders in early 2010, is YUII actively looking for more acquisitions or purchasing more breeders and if so would you need to raise more capital?
In late 2009, YUII acquired 13 breeder farms with the capacity of 0.6 million sets of parent breeders, or 50% of the YUII capacity at the time of the acquisition. The acquisition was fully self-funded. We will consider additional acquisitions in 2010, as long as acquisition costs are less expensive than the cost for us to build new breeder farms. In 2009, acquisitions were very attractive, since many of our competitors sought to exit the business given the oversupply lower average prices for day old broilers. Now, in 2010, we have seen a significant increase in the price of corn, a key ingredient in chicken feed, while at the same time pricing for day old broilers has remained relatively flat. As a result, we continue to see competitors seeking to exit the business. At the same time, construction material costs have increased, further increasing the attractiveness of acquisitions.
TCP: Ernst and Young just cleared your accounting practices related to payment procedures which Grant Thornton had raised issues with, can you tell what measures have been put in place to prevent similar issues from recurring?
Our board of directors passed resolutions to increase our internal controls and ensure long-term compliance with SOX, including new processes and procedures for handling any potential related-party transactions. We also created a new position of internal auditor who will report to the chairman of the audit committee directly and draft quarterly reports examining internal controls.
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