Food & Beverages

Food & Beverages Plc
2Q13F earnings preview. We expect broiler and swine operators to show recovery
QoQ after bottoming in 2012, in terms of both sales volume and prices, with local
supply looking at a shortfall. We expect GFPT to be the best performer in 2Q13F with
net profit of Bt200mn thanks to the fast recovery in broiler prices and in its gross
margin. CPF’s earnings will be given some support by better broiler and swine prices
but it continues to be hurt by its shrimp business and we estimate a 2Q13 net profit of
Bt2.4bn. TUF is looking the worst, with 2Q13F earnings forecast at Bt356mn and core
profit of Bt506mn.
Margin better for swine/broiler business in 3Q13F QoQ. A report shows that
broiler and swine prices increased in July, with swine price last at Bt69.50/kg +3.73%
MoM, +24% YoY and broiler price at Bt47/kg +2% MoM, +24% YoY. Prices for these have
risen concurrent with a fall in corn and soybean meal prices. Soybean meal price stood
at Bt16.95/kg, -0.30% MoM, -14% YoY in July 2013, down from peak of Bt21.60/kg, or
-22%, in September 2012. Corn prices were stable, ending at Bt10/kg, down -1% MoM,
-7% YoY in July 2013 from Bt11.80/kg, a 15% decrease, in Aug 2012. Swine products in a
closed system such as CPFs may benefit from the outbreak of swine diseases PRRS and
PED that has led to a drop in swine production. We expect this to have a positive effect
on sales and earnings for both CPF and GFPT. We believe gross margin hit a new high
for this year in July, particularly since 3Q13 is considered high season for export of
swine. If this price movement continues, we expect to see recovery in 3Q13F operating
profits and improvement QoQ.
Slump in tuna price in July to bring stock loss for TUF. Tuna prices slumped by
8.4% MoM to US$1,850 per ton from US$2,020 per ton in July, leading to concerns over
gross margin for TUF this year. In 1Q13, its tuna gross margin fell to 10% from the
normal 15%; although it should improve in 2H13, price fluctuations are giving TUF stock
losses and making it difficult to bring gross margin back up.
Shrimp business causing pain. The shrimp business is still suffering from supply
shortage and a surge in shrimp price due to EMS disease. This damaged the shrimp
operations of CPF in Thailand and Vietnam and of TUF. Thailand’s 2013 shrimp
production forecast has been slashed to 250,000 tons from 350,000 tons.
Less impact from domestic consumption slowdown: SCB EIC expects private
consumption growth to slow down YoY to 2.0% in 2Q13, 3.5% in 3Q13 and 2.4% in 4Q13
from 4.2% in 1Q13 and 6.7% in 2012, against 2013 GDP growth of 4.0%. We are of the
opinion that food and beverages – as a necessity – will be affected less.
“Overweight” food industry with our top pick of CPF, GFPT and PM respectively. We
expect a turnaround to begin in 2H13.