Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

- 4Q13 net profit to drop qoq due to low season
We project CPF's 4Q13 net profit at B2.16bn, falling 18%qoq but skyrocketing
eight fold yoy. However, excluding B2bn extraordinary income from selling of
investment, 4Q13 normalized income would be B161m, falling 82%qoq (but
rebounding from B2.12bn loss in 4Q12), due to the following factors: 1) Net
profit from domestic businesses is expected to drop qoq. Livestock business
(35% of total income) would be pressed as a result of low season for food export
and a decrease in livestock price. 4Q13 pork farm gate price and live chicken
price were B65.95/kg (falling 4.7%qoq) and B39.61/kg (falling 13.1%qoq),
respectively. Moreover, feed mill raw material cost stayed high, close to 3Q13.
Though 4Q13 corn price decreased by 16%qoq, the four-year lowest, CPF still
had feed stock from the previous quarter, so it would not benefit from lower raw
material price. Still, CPF might substantially benefit from this from 1Q14 on. For
shrimp business (8% of total income), despite farmers' prevention of EMS, CPF
would still face loss as small amount of shrimp product was sold in the market
and 4Q-1Q is usually a low season for shrimp business. Thus, 4Q13 shrimp
production would be low. 2) Net profit from overseas businesses is expected to
drop slightly qoq. Profit from feed mill raw material business in China would fall
as it was a low season for livestock business in China. 3) Share of profit from
associated companies is projected to drop by 10%qoq, mainly from a decrease
in CPALL's net profit (CPF holding 32% stake). Thus, CPF's FY2013 net profit is
projected at B7.5bn, falling 60%yoy, 8% below our FY2013 net profit forecast.
- FY2014 net profit to leap 41%yoy. Livestock and aquaculture businesses to rebound
We maintain our FY2014-2015 net profit growth forecast at 41%yoy and
31%yoy, respectively, due to the following factors: 1) Domestic businesses have
been recovering significantly, especially for livestock business (pork and
chicken), as feed mill raw material cost has continued declining. Soybean meal
price has fallen as higher amount of soybean products from North and South
America has been sold in the market, and corn price (100% produced in
Thailand) has dropped due to decreasing demand for corn in biodiesel
production. Aquaculture business is likely to rebound to slight profit. Shrimp
business is likely to start making profit from 2Q14 on after EMS problem has
subsided, and sales volume for shrimp business (shrimp feed and processed
shrimp) is expected to rebound significantly in 2014. 2) Overseas business is
projected to improve. Livestock business in Vietnam has started making profit
after oversupply problem has been solved. Thanks to these factors, CPF's net
profit is projected to leap in next two years.
- "BUY". Core businesses to recover thanks to weak Baht
We derive end-2013 fair value (2.2x PBV) at B33.78, implying 13%. We believe
that the share price has substantially absorbed negative factors. Also, FY2014
earnings results it likely to rebound, boosting CPF's share price. We recommend
"BUY".