GFPT
Profit disappointed; downgrade SELL (downgraded) Target Price: Bt6.00 Price (09/08/12): Bt8.30
GFPT Plc
Poor results: GFPT reported a Bt16m net loss for 2Q12, against a Bt362m net profit for 2Q11 and a loss of Bt14m for 1Q12. We had expected a Bt35m net profit. GM was only 6.8% (we had assumed 8%) and other income was lower than modeled. The lower-than-modeled GM was attributable to losses on chicken meat stocks (due to the domestic chicken price plunge) and weaker margins for sales of chicken meat, feed and live chickens (to GFN) than modeled.
Results highlights: The bottom-line deterioration was driven by the domestic chicken price dive from Bt52/kg in 2Q11 to Bt37/kg, squeezed feed sales margin and higher SG&A (wage costs, transportation and fuel prices). Export sales in 2Q12 rose 20% YoY, led by volume—1,633 tonnes/month against 1,233 tonnes/ month in 2Q11. GFN posted a net loss of Bt90m, 20% shallower YoY.
Sales rose 8% YoY, led by breeders, sales of live chickens to GFN, processed food and feed sales. But chicken meat sales slumped 14% YoY, due to the plunge in the domestic chicken price. In EBIT terms, live chicken sales to GFN, chicken meat sales and animal feed sales posted YoY declines.
Outlook: We expect the domestic chicken oversupply to persist through to YE12, due to capacity expansions among two major operators (Saha Farm’s capacity will will rise from 700K/day to 1m/day by YE12). Ongoing dumping is likely to keep the domestic price below Bt35/kg through this year. There is risk of higher raw material prices in 4Q12, given that GFPT has corn and soybean meal stockpiles sufficient to last only about three months. We estimate a Bt30m net profit for 3Q12, a precipitous 92% YoY plunge. Management hinted that 2H12 earnings will remain weak. GFN now looks unlikely to break even before FY13.
What’s changed? We have cut our FY12 net profit forecast by 47% and our FY13 number by 24% to factor in diminished expectations for 2H12 and next year. As such, our YE12 target price drops from Bt8.5 to Bt6.
Recommendation: We have downgraded our rating from HOLD to SELL, due to the prevailing oversupply of domestic chicken.
