GFPT

GFPT Plc

Investment thesis
GFPT remains our top pick within Food space, premised on a clear bottom-line turnaround since 4Q12 and a sustained recovery through 2H13. The stock trades at a cheap FY14 PER of 10.2x.
Expect 47% QoQ profit jump for 2Q13
We estimate a Bt190m net profit for 2Q13, up 47% QoQ and much improved from the Bt16m net loss posted for 2Q12. The assumed YoY turnaround is due to higher domestic and export chicken sales prices, greater volume, a turnaround at GFN and a realized FX gain. The QoQ profit jump is led by higher domestic and export chicken prices, greater export volume, a significant rise in GFN’s net earnings and flattish raw material prices. Those positive factors should have outweighed the effect of lower sales of shrimp feed (down 35% YoY, due to prevailing Early Mortality Syndrome) and livestock feed (down 5% YoY)
Total sales should have increased by 6% YoY and 5% QoQ. We assume GM of 10% against 6.8% in 2Q12 and 8.3% in 1Q13. The SG&A/sales ratio is assumed at 6.3% against 6.6% in 1Q13 and 6.4% in 2Q12—only a modest chicken inventory loss for the quarter. We estimate GFN’s 2Q13 net profit at Bt50m, up 85% QoQ (Bt90m net loss in 2Q12), due to improved margin with the start-up of a new processing line in May (which adds 400 tonnes/month) and higher domestic and export chicken prices.  
The 2Q13 mean domestic chicken price was Bt46.3/kg, up by 24% YoY and 14% QoQ. The average corn price was Bt10.2/kg, down 2% YoY and flattish QoQ. The mean SBM price was Bt18.1/kg, up 13% YoY but down 1% QoQ. GFPT’s average export price is estimated at US$4,380/tonne, up by 12% YoY and 5% QoQ, while its export volume is assumed at 1,850 tonnes/ month, up by 13% YoY and 5% QoQ.
Much improved profitability expected in 2H13
We preliminarily forecast a Bt250-300m net profit for 3Q13, up by 32-58% QoQ (and a YoY turnaround from a Bt24m net loss), led by sustained high domestic and export chicken prices, an expected fall in the soybean meal price, an improved margin at GFN (thanks to more processed chicken in its sales mix) and a shrimp feed recovery (more shrimp farming in 2H13).
Export price and volume will rise further in 3Q13, due to the quarter being high season for exports. GFN will post HoH net profit growth for 2H13, led by improved margin. The domestic chicken price should remain above Bt45/kg in 2H13, thanks to a temporary supply shortfall caused by a Saha Farms processing plant shutdown. As such, the rainy season is likely to have only a marginal impact on domestic chicken prices this year.