GFPT

GFPT Plc
 

Investment thesis: We have upgraded our GFPT rating to TRADING BUY (from HOLD), premised on two trading ideas: 1) a post-flooding chicken supply shortage and 2) a discounted valuation. We expect domestic chicken prices to rebound soon after the waters recede (in the same manner that they have rebounded strongly in the wake of other episodes of heavy flooding). The scope for a chicken price surge might not be as great as the May 2011 jump (when it peaked at Bt55/kg), which followed flooding in March-April, as supply has expanded significantly since July. GFPT estimates a 10-15% rebound to the Bt45-48/kg range in Dec 2011. Furthermore, we remain concerned about the risk of an export price decline during 4Q11-FY12 and that GFN might fail to break-even by 2Q12. Note also that the EU is unlikely to lift its ban on raw chicken before June 2012. GFPT trades at an 18% discount to our YE12 target price of Bt11. 
Anticipate modest 3Q11 profit growth: We estimate a Bt388m net profit for 3Q11, up by 4% YoY and 7% QoQ. Our new estimate is somewhat less bullish than our previous number of Bt400m—we now assume a deeper GFN net loss for the quarter. The key drivers of 3Q11 earnings were feed sales and increased live chicken sales to GFN, in tandem with a slaughter ramp-up to 75,000 birds/day. Chicken meat sales should be posted flattish QoQ and down 8% YoY. Gross margin is likely to have been maintained at 17.2%, close to the 2Q11 number.
Export prices to drop in 4Q11-FY12: Based on the Thai Broiler Association of Thailand’s estimate of an 18% QoQ drop in the 4Q11 industry cooked chicken export price, GFPT guides for a 4Q11 chicken export price range of US$4,300-4,500/tonne, down 6-10% QoQ. It also forecasts an FY12 chicken export price range of $4,000-4,300/tonne, slippage of 5-7% YoY.
Post-flood chicken price rebound: The flooding is estimated to have killed 10-12m chickens that otherwise would have gone to slaughter. As such, GFPT expects the mean domestic chicken price to rebound to the Bt45-48/kg range in Dec, up 10-15% from the 3Q11 nadir. None of the firm’s three facilities have been affected by the flooding (but the feedmill in Samut Prakan is threatened by rising waters). It’s conceivable that 4Q11 livestock feed sales to pig farmers might be affected somewhat.