GFPT

GFPT Plc

Investment thesis
Following the 1Q13 analyst meeting, we remain confident in GFPT’s FY13 turnaround story, led by a bounce in domestic chicken prices, sustained high export prices and volume, a drop in the soybean meal price and black ink at GFN. Momentum will be sustained in 2H13. Our BUY rating stands. 
1Q13 robust results but below estimate
GFPT reported a Bt130m net profit for 1Q13, up 14% QoQ and a turnaround from the Bt33m net loss posted for 1Q12. The number was 19% below our estimate, due to heavier SG&A, interest and tax expenses than modeled. EBIT undershot our model by 23% on higher SG&A than assumed (related to a Bt32m inventory loss in 1Q13). The higher tax expenses were because of a deferred tax item in Jan 2013.
The bottom-line jump was led by a higher mean domestic chicken price (up by 17% YoY and 8% QoQ), an increased export price (US$4,175/tonne, up by 9% YoY and 3% QoQ) and greater export volume (1,767 tonnes/month, up 71% YoY but down 10% QoQ), a turnaround at GFN and greater other income (a realized FX gain). GM was 8.3%, up from 6.1% in 1Q12 and 7.2% in 4Q12. GFN posted its first net profit in its history for 1Q13 of Bt27m against net losses of Bt112m for 1Q12 and Bt66m for 4Q12.
Recovery momentum to be sustained through 3Q13
We forecast a Bt180-200m net profit for 2Q13, a YoY turnaround from a Bt16m net loss for 2Q12 and up 40-50% QoQ. The drivers are higher domestic chicken prices (Bt45/kg, up by 21% YoY and 11% QoQ), sustained high export prices (US$4,200/tonne, up by 7% YoY and 1% QoQ) and export volumes (1,800 tonnes/month, up by 10% YoY and 2% QoQ) and an 11% QoQ rise in GFN’s net earnings to Bt30m (led by a stronger domestic price and sustained high export price).
With regard to GFN, in June or July a new higher-margin processed chicken production line with a capacity of 4,000 tonnes/month will start operating, which should boost its 3Q13 earnings. We forecast a net profit in the range of Bt100-120m for GFN in FY13 (a turnaround from its Bt318m net loss for FY12).  
Diminished domestic chicken oversupply in FY13
Management expects the domestic chicken price to be sustained above Bt40/kg, as chicken oversupply has diminished. Note that Saha Farm cut its production to 400-500K birds/day from 800K birds/day; hence, industrywide domestic chicken supply has declined to 24-25m birds/week from 25-26m birds/week in 2012. GFPT said that the outbreak of H7N9 bird flu in China might cause Japan to delay lifting its ban on Thai raw chicken to YE13.