Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)

Overshot our estimate  
CPF reported a Bt2.65bn net profit for 3Q13, up by 10% YoY and 62% QoQ. Excluding extra items—a Bt119m FX loss and a Bt1.06bn after-tax gain from trading CPALL shares—core earnings would be Bt1.71bn, up 6% YoY and a reversal from a Bt842m core loss in 2Q13. Net profit exceeded our estimate by 7%. The core number was better than the Bt282m core loss we had assumed, due to fatter GM and higher equity income from affiliates than modeled. GM was 11.3%; our estimate was 10%. Note that we have factored a Bt561m gain from fair value adjustments for biological stocks that were booked in 3Q13 into our GM and core number calculations.
Result highlights
The YoY core earnings rise was led by fatter GM for livestock meats (lower raw material costs and higher livestock meat prices) and a turnaround at the Vietnam operation. The QoQ core turnaround was due to high season, improved overseas operations (Vietnam, Taiwan, Russia and Philippines) and fatter GM for livestock meats. Domestic shrimp posted a deeper QoQ loss (OPM of -21.6% in 3Q13 & -13.6% in 2Q13) but overseas shrimp operations improved QoQ (OPM of 3.7% in 3Q13 against 1.5% in 2Q13).
Looking at foreign units, Turkey reported a Bt260m net loss, deeper by 271% YoY and flattish QoQ, due to fiercer competition. India posted a Bt30m net loss, against profits in 2Q13 and 3Q12, due to a slump in livestock meat prices (but its shrimp numbers were strong). Vietnam turned around QoQ to a Bt450m profit, driven by greater shrimp output. 
Outlook
We expect the 2H13 core profit to rise HoH and FY14 core earnings to jump YoY, led by further declines in raw material prices, a big shrimp recovery, strong livestock meat prices and an improvement in Turkey. Management expects corn and SBM prices to fall by 10-15% in 1H14 and fatter livestock GM. The FY14 shrimp recovery will be led by greater export volume (up 33% to 40k tonnes) with output normalization in 2Q14. A reduction in the number of players in Turkey will aid CPF’s operation in that country in FY14. We estimate a Bt500m 4Q13 core profit, a YoY turnaround from the Bt1.7bn core loss posted for 4Q12, led by better numbers for Turkey, Vietnam and India.
What’s changed?
We have upgraded our FY13 core forecast to a Bt772m profit (from a Bt1.1bn core loss), due to much better 3Q13 results than modeled.
Recommendation
Our TRADING BUY rating stands, premised on an FY14 core profit jump.