Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)

Investment thesis
Following the 1Q13 analyst meeting, we anticipate an HoH earnings bounce in 2H13, led by a recovery in the shrimp operation and lower soybean meal costs. Our BUY rating stands.
Shallower 1Q13 core loss than model
CPF posted a Bt1.03bn net profit for 1Q13, down 92% YoY but up 332% QoQ. Stripping out a Bt1.7bn after-tax gain from trading CPALL shares and a Bt111m FX loss, its core loss would be Bt576m, 66% shallower QoQ (the core profit was Bt2.6bn in 1Q12). Net profit exceeded our estimate by 242%, thanks to big extra gains. The core loss was 46% shallower than modeled, due to lower SG&A and greater equity income than assumed. Sales were 3% below our estimate, due to lower shrimp sales as a result of Early Mortality Syndrome (EMS) disease. GM was in line with our expectation. Total shrimp-related operations posted a Bt2bn net loss for 1Q13.
All overseas units except Turkey, India and Cambodia posted operational deterioration. Turkey posted a Bt120m 1Q13 net loss, 70% shallower QoQ. India reported a Bt150m net loss, 35% shallower QoQ. CPP in China (including CPV) posted a US$30m net profit for 1Q13, down by 39% YoY and 28% QoQ. Malaysia, Russia and the Philippines reported YoY and QoQ falls. The Malaysian unit was impacted by an EMS disease outbreak among shrimp.
The 1Q13 mean domestic chicken price was Bt40.7/kg (up by 17% YoY and 8% QoQ). The mean pork price was Bt63/kg (up by 19% YoY and 18% QoQ). The mean corn price was Bt10.2/kg (down by 1% YoY and QoQ). The mean SBM price was Bt18.2/kg (up 22% YoY but down 8% QoQ).
2Q13 earnings likely to dive YoY but improve QoQ
We estimate a Bt1.5bn core profit for 2Q13, down 50% YoY but much better than the Bt576m core loss posted for 1Q13, led by high season, a bounce in domestic livestock operations and slight improvements among overseas units. Shrimp should post a shallower QoQ net loss, due to shrimp-raising expansion. We expect shrimp operations to normalize in 3Q13. Chinese feed revenue will weaken YoY and QoQ in 2Q13, due to an outbreak of H7N9 bird flu. The Vietnam operation will be flattish QoQ.
Debt reduction planned through the asset sales
The firm will consider reducing its debt level through the sale of noncore assets (such as plots of land) or the partial sale of its 74%-stake in CPP (it aims to hold at least 51% after the sale). No definite timeline has yet been set.