GFPT

GFPT Plc
Above estimate: GFPT reported a Bt14m net loss for 1Q12 against net profits of Bt255m for 1Q11 and Bt215m for 4Q11. The reported net loss was 72% shallower than our estimate of a Bt50m net loss, due to lower-than-expected SG&A and higher-than-modeled other income. EBIT exceeded our model by 19%. GFPT also posted an after-tax profit of Bt25m (we had assumed an after-tax loss of Bt16m).
Results highlights: The operational deterioration was attributable to lower domestic and export prices, a decline in domestic sales volume related to post-flooding domestic consumption shrinkage and a deeper QoQ net loss at GFN (red ink of Bt112m—flattish YoY but 15% deeper QoQ). GM dived to 6% from 16% in 1Q11 and 12.3% in 4Q11. The chicken meat unit posted a heavy operating loss of Bt117m for 1Q12 (a Bt46m profit in 1Q11 and a Bt12m loss in 4Q11), due to the domestic chicken price plunge. The feed business operating profit tumbled by 28%, both YoY and QoQ.
The mean 1Q12 domestic chicken price was Bt35/kg—down by 27% YoY and 13% QoQ—while the average corn price was Bt10.3/kg—up by 6% YoY and 7% QoQ. The soybean meal price averaged Bt15/kg, up by 8% YoY and 6% QoQ. As such, GFPT’s cost of chicken production was Bt36-37/kg. 
Outlook: We think the 1Q12 net loss was the nadir for the year. The bottom-line will bounce back into black in 2Q12, fueled by a higher domestic chicken price. Chicken supplies have tightened, due to stocking in preparation for the resumption of exports to the EU in July and the start of the school year in May. GFN’s net loss will be shallower in 2Q12 because of better domestic prices. We also expect sustained 2H12 earnings growth recovery, driven by higher domestic and export prices for chicken, bigger sales volumes and earnings at GFN during the period.
What’s changed? We maintain our FY12 net profit forecast unchanged.
Recommendation: Our BUY rating stands, premised on a cheap FY13 PER of 8x, a 2H12 operational turnaround and upside from Japan lifting its ban on raw chicken imports from Thailand (expected in 4Q12). We recommend overlooking the relatively weak FY12 earnings profile and looking to the year ahead.