GFPT

GFPT Plc

Investment thesis
Following our visit to GFN’s chicken processing plant in Chonburi province last week, we are confident that it will remain profitable through this year and next, supported by the domestic chicken price recovery, greater processed chicken exports and the start-up of its third chicken processing line in May. Our BUY rating stands, premised on a strong ongoing turnaround at GFN and improved core operations at GFPT in FY13. 
GFN’s slaughtering capacity to expand next year
GFPT Nichirei (Thailand) Co Ltd (GFN), a JV between Nichirei Foods (51%) and GFPT (49%), currently has a slaughtering capacity of 100K birds/day and three processing lines with a combined nameplate production capacity of 1,800 tonnes/month. GFN will ramp up its nameplate capacity to 125K birds/day by YE14. In the meantime, its actual throughput could conceivably rise to about 140K birds/day if it were to add an extra shift.
GFN’s third processing line started operating in May; it will boost capacity by 400 tonnes/month. A fourth processing line is due to start up next year. CAPEX for the third line was Bt300m; a similar amount is budgeted for the fourth line.
GFN’s GM is expected to fatten in 2H13
GFN’s chicken exports totaled 1,900 tonnes in April and 2,300 tonnes in May. We expect 2,300 tonnes in June (against a monthly average of about 1,700-1,800 tonnes in 1Q13). Its export volume breakdown for May was 52% (1,200 tonnes) processed chicken to Japan, 22% (500 tonnes) processed chicken to the EU and 26% (600 tonnes) raw chicken to the EU. As such, we expect GFN’s margin to improve in 2H13, boosted by a greater proportion of higher margin processed chicken in its sales mix—it plans to cut raw chicken exports to the EU from 600 tonnes/month to 300 tonnes/month in 2H13—and the start-up of its third chicken processing line in May.
Better earnings for GFPT in 2H13 through to FY14
We expect GFPT’s 2H13 earnings to rise HoH, underpinned by the third-quarter peak for exports and greater shrimp feed sales as a result of the normalization of shrimp farming (related to the easing of the Early Mortality Syndrome disease), despite the likelihood of seasonally softer chicken prices in the third-quarter. We forecast that GFPT’s GM will rise from 6.4% in FY12 to 10% in FY13 and 12% in FY14, bolstered by improved domestic chicken prices, lower soybean meal prices, greater processed chicken export sales in 2H13 and sustained profitability at GFN (a Bt120m net profit for FY13 against a Bt318m net loss in FY12).