GFPT Plc

GFPT Plc 

Investment thesis

Following the preview conference call, we expect GFPT to post a robust YoY profit rise for 2Q14, followed by stronger HoH 2H14 numbers (led by fatter margins for export and domestic sales). There may be scope for upside from an additional 200 tonnes/month of sales to Mackey, due to MacDonald’s Japan switching its purchases from China to Thailand. Our BUY rating stands, premised on stronger 2H14 earnings and a cheap valuation—a PER of 11.9x for FY14. 

Insights into 2Q14—a robust YoY profit rise 

We estimate a Bt450m net profit for 2Q14, up by 49% YoY and 6% QoQ, led by greater mean chicken export volume (2,400 tonnes/month, up 26% YoY), increased livestock feed sales volume and higher equity income from GFN and Mackey. The modest expected QoQ profit rise is due to seasonality and an 18% chicken export volume expansion. 

Of GFPT’s total 2Q14 export volume, its raw chicken exports comprised 25%, the remainder was processed. Raw chicken exports rose from 300 tonnes/month in 1Q14 to 600 tonnes/month in 2Q14, due to greater raw chicken export volume to Japan (up from less than 100 tonnes/month in 1Q14 to 300-400 tonnes/month in 2Q14). We assume a 2Q14 mean export price at US$4,150/tonne, down by 6% YoY and QoQ, as the proportion of raw chicken in the sales mix rose. 

GFN’s 2Q14 net profit is assumed at Bt110m, up 29% YoY (but down 7% QoQ), led by fatter GM—a higher proportion of processed chicken in its sales mix. Its processed chicken sales volume rose from 1,400 tonnes/month in FY13 to 1,600 tonnes/month in 1H14. We expect a Bt52m net profit for Mackey for 2Q14, up by 31% YoY and 2% QoQ, thanks to a capacity utilization rise from 1,600 tonnes/month in FY13 to 1,800 tonnes/month in 1H14. 

Domestic byproduct margin is assumed to have weakened YoY and QoQ, due to a lower domestic chicken price in 2Q14 (down by 12% YoY and 4% QoQ) and higher raw material prices (the corn price was down 6% YoY but up 12% QoQ and the SBM price was up by 17% YoY and 3% QoQ). Livestock feed sales are assumed to have risen 15% YoY, while aquaculture feed sales probably fell 10% YoY. Sales will have risen by 10% YoY and 12% QoQ. We assume GM of 14.7% against 11.1% in 2Q13 and 14.5% in 1Q14. 

Expect stronger HoH earnings for 2H14  

Domestic byproduct sales margin should fatten in 2H14, led by strong domestic chicken prices and lower raw material costs. The domestic corn price is likely to drop in September with harvest season. The SBM price started declining in July in anticipation of a huge US harvest in Sept-Oct. Export margin will fatten in 2H14 on a rising proportion of processed chicken in the sales mix.