Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

- High probability for forecast down revision
In the contrary to our preliminary forecast, feed mill raw material cost is
projected to surge high in 2014. As a result of worldwide unfavorable weather
for feed production, smaller amount of corn and soybean meal products
(domestic and overseas) has been sold in the market. Corn price has leapt by
25% from end-2013, and soybean meal price has risen by 2%qoq. Because
livestock business makes up 33% of its total income, CPF is likely to suffer high
risk as corn and soybean meal cost makes up 40% and 24% of its raw material
cost. Thanks to its inexpensive feed stock from late-2013, 1Q14 earnings result
is not likely to be affected by the negative factor. However, CPF's net profit
would be threatened in the next few quarters, and its gross margin would be
worse than our projection.
- 1Q14 profit to rebound but already expected in forecast
We project CPF's 1Q14 net profit at B2.6bn, leaping 48%qoq and 153%yoy.
Excluding B1.5bn extraordinary profit, 1Q14 normalized profit is expected at
B1bn, significantly rebounding from loss in 4Q13 thanks to these factors: 1)
Domestic livestock business is likely to improve. Pork and chicken prices have
risen by 12%qoq, whereas feed mill raw material cost has been low because of
inexpensive feed stock from late-2013. Thus, 1Q14 gross margin from livestock
business is expected to be very strong. Meanwhile, shrimp business is projected
to face loss. Though shrimp farmers have been able to deal with disease
problem, small amount of shrimp business would be sold in the market because
of low season and unfavorable weather for shrimp farming. 2) Profit from
overseas business is expected to grow qoq, especially livestock business in
Vietnam, as the oversupply problem has receded. 3) Share of profit from
associated companies is projected to grow by 30%qoq, mainly from CPALL's
increasing profit.
- Hold for dividend
We downgrade our recommendation from buying to holding. End-2014 fair value
(2.2x PBV) is B33.80, implying high upside. However, CPF's FY2014 earnings
forecast is likely to be revised down in near future, so its new fair value might
not imply high upside.