Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CFP)

4Q13F preview: Shrimp still shrinking
4Q14F preview: We estimate total sales of Bt95bn, -10% QoQ, with net profit of
Bt2.3bn, -13%QoQ; including profit share from CPALL of Bt995mn brings growth of
12%QoQ. Vietnam and China continued to perform well in the quarter, with estimated
4Q13 net profit of Bt400mn and Bt1bn. Its Thai livestock business (broiler and swine) is
expected to report a good performance in 4Q13, backed by good product prices and
spread. The shrimp business is expected to disappoint with losses greater than the
profit from the livestock business and CPF is thus expected to report a pure operating
loss of Bt105mn. This is, however, improved from the losses of Bt410mn in 3Q13,
Bt2.7bn in 2Q13 and Bt2.1bn in 1Q13.
Shrimp. CPF expects its Thai shrimp operations to reach breakeven in 2Q14, with gross
margin in the positives after -6.5% in 9M13 and -13.2% in 3Q13. In 2013, Thai shrimp
production came to 260,000 tons, nearly halved from 2012. Production is expected to
grow 20% in 2014 to 312,000 tons per annum, with CPF holding ~15% of Thailand’s
shrimp market share. Current price shows a small decline to Bt270kg from Bt275/kg in
November. We estimate average 2014 price at ~Bt220/kg, compared to an average of
Bt231/kg in 2013. CPF is working to increase shrimp production to 3,000 tons/month
from 2,000 tons/month, still well below breakeven of 4,000-5,000 tons/month. It
expects to reach that level in 2Q14.
Livestock (broilers and swine). CPF maintains production at 5mn chickens per week,
keeping market share at 20-25%. This business looks better in 2014 as Japan is again
opening its doors to imports of Thai fresh broiler products. The addition of Japan
orders will boost CPF’s sales by Bt5bn per year and net profit by Bt200mn, +1.4% of its
operating profit. Current broiler price is Bt42/kg, with cost of production at Bt37/kg,
down from 2013’s Bt40/kg. CPF enjoys a good margin on its livestock products. Swine
price is stable at Bt68/kg against cost of Bt58/kg, down from last year’s Bt62/kg. The
steady decline in the price of animal feed raw materials will widen spread.
Overseas. The lead performer in 4Q13F and 2014 will be CPP (Hong Kong). China
operations are strong with a gross margin of 15%, but the best turnaround will be in
Vietnam where there will be a strong recovery in the swine business, after an
oversupply in 1H13 (>50% of sales in Vietnam come from swine), and in the shrimp feed
business as well. The most disappointing overseas business unit is Turkey with a loss of
Bt800mn in 9M13, as the country is in the midst of a recession and there is fierce
competition in the local broiler business. CPF forecasts Turkey to lose only Bt500mn in
2014 after changing various things including management.
Maintain BUY with the target price of Bt35. We revised down earnings in 2013 by
8% but changing slightly in 2014 earnings. We maintain our BUY with a target price of
Bt35, based on 16xPER in 2014.