CPF Plc

CPF Plc
- Overseas business rebounds
CPF is expected to rebound for the remainder of 2014, thanks to positive
factors in overseas business (58% of total income). Livestock and
aquaculture businesses in Vietnam are projected to grow continuously
after livestock oversupply and EMS (shrimp) problems have receded.
Livestock business in India is expected to generate strong profit after
the business expansion. Meanwhile, for CPF's business in China (CPP;
focusing on feed business), its profit is not likely to grow well. Thus, CPP
has expanded its business to be more comprehensive and invested on
ready meal business with higher margin; starting the commercial run in
4Q14. However, CPP's sales volume is not likely to meet the target;
despite large market and large population in China, the competition is
fierce and people in each region have different tastes. CPF's domestic
business (42% of total income) is expected to recover gradually. A
rebound in shrimp business might be delayed because shrimp farmers
have not been confidence about recovery from EMS. Livestock business
is expected to rebound back to normal in 1Q14. However, as a result of
rising raw material cost, gross margin is expected to fall throughout
2014 from 13.4% in 1Q14.
- Maintain forecast. Worrying domestic business
We maintain our FY2014-2015 earnings forecast, expecting FY2014 net
profit not to grow strongly. Smaller amount of corn and soybean meal
products has been sold in the market as a result of worldwide
unfavorable weather for feed production. CPF would suffer from
increasing feed mill raw material cost because corn and soybean meal
cost makes up 40% and 24% of its raw material cost, respectively.
Thanks to its inexpensive feed stock from late-2013, 1Q14 earnings
result was not affected by this negative factor. However, it would
threaten CPF's net profit in the next two or three quarters, and 2Q14 -
4Q14 gross margin would drop from 1Q14.
- Share price already reflected FY2014 fair value
We derive FY2014 fair value (GGM, 1.80x PBV, 15.8% long-term ROE)
at B28, implying limited upside. We recommend holding for dividend
(paid twice a year).