GFPT

GFPT Plc
 - Turnaround definite: Impressive 1Q13 net profit of Bt130mn
 - GFN in the black after two years of losses
 - Even better ahead: second and third quarters are high season for chicken exports
 - BUY with target price raised to Bt9.20, based on 12x PER and 1.8x 2014 PBV

Q1 2013A net profit of Bt130 mn. GFPT finally emerged solidly in the black with a net profit of Bt130mn in 1Q13 after a net loss of Bt33mn 1Q12; this was also a gain of 32% QoQ. Underwriting the profit was an increase in export volume of cooked chicken products and improved domestic prices (i.e. day-old-chicks, live chickens and chicken meat). Gross margin rose from 6% in 1Q12 to 8% in 1Q13, on the way to meeting our expected 2013 gross margin of 11.3%. The main impetus behind the improvement was a remarkably better performance by GFN, helped by a Bt1.5bn capital injection from GFPT and Nichirei in 2012 that massively reduced GFN’s interest expense.
GFN turnaround lifted the clouds. GFPT Nichirei (Thailand) Company Limited (GFN) is a joint venture between GFPT (49%) and Nichirei Food Inc. (51%). GFN produces cooked chicken products, in a wide range of steamed, fried and grilled, mainly for export to Japan and other markets abroad. In 1Q13, GFN contributed Bt27mn equity sharing profit to GFPT, turning up from a loss of Bt111mn in 2011 and loss of Bt74mn in 2012. Beginning 2013 well, we forecast a contribution of Bt116mn to GFPT in 2013.
Expect better performance in 2013. With second and third quarters traditionally the highest for chicken exports and given the strong start to the year, we expect GFPT earnings to be much better this year, with net profit in 2Q13 climbing to ~Bt200mn. Shrimp feed sales are expected to get back to normal in 3Q13, with the shrimp Early Mortality Syndrome Disease (EMS) under control, allowing shrimp farming to resume.
Better margins in 2013. We expect GFPT’s gross margin to strengthen to 11.3% in 2013 and 11.6% in 2014 from only 6.5% in 2012. Currently, broiler price has climbed to Bt46/kg from Bt41/kg in 1Q13 and Bt36/kg in 2012. Raw material costs, both corn and soybean meal will be falling from peak in 3Q12 to normal levels and this should be reflected clearly in 2H13 with a fall of 15%-19% from peak (soybean meal price peaked at Bt21/kg). The ease back in raw material prices and supply cut in the broiler industry is helping bring average selling price up and we expect this to be very clear in 2H13.
BUY and lift target price to Bt9.20/share. GFPT is looking at a substantial improvement in earnings in 2013 after tumbling in 2012 because of a narrowed margin. GFPT should be trading at lower PER than CPF and TUF (target at ~14x in 2014 PER). We set GFPT’s target price based on 12x PER and 1.8x PBV in 2014, reflecting its lower gross margin (11-12%) than CPF and TUF (13-15%).