Bangkok Ranch

Bangkok Ranch Plc (BR) 

 

Investment thesis

We have initiated coverage on BR with a BUY rating and a PE-based target price of Bt13.20, on par with its peer average. BR has the best mix of 3Ds (Defensive, Dividend and Discount), and intact growth excitement. Duck consumption has proved to be very resilient, especially amid the slowing global economy. BR’s IPO price of Bt8.80 implies an attractive FY15 dividend yield of 5.3%, far above the SET yield of 3.2%. The stock is also trading with an undemanding valuation—10.3X P/E—equivalent to a bottom-end valuation of meat price down-cycle; and only 0.07x PBV/ROE versus 0.13x of its peer average. Last but not least, there is substantial scope for upside from a 50% capacity boost by 3Q17 and a windfall benefit from Baht depreciation against the greenback. 

Resilient duck consumption 

The duck meat industry has the most resilient consumption growth profile compared to other meat industries. Based on our statistical data, in the severe EU economic recession during 2011, duck consumption per head managed to grow at a CAGR of 3.0%, 2006-11, to 0.96 from 0.83 kg/head/annum. Likewise, during the US fiscal crisis in 2008, total duck consumption of the top-20 countries rose 6% YoY to 3.6m tonnes (from 3.4m tonnes in 2007). Asia was the largest global duck consumer, posting a 2008-11 CAGR of 4.0%, followed by 2.0% for Europe during the same period.  

BR is duck market-share leader in Thailand and Netherlands

We regard the duck industry structure in Thailand as oligopolistic because it has only two major players, which hold about 94% of total market share. The oligopolistic structure allows BR to control duck supply and negotiate pricing with clients with ease when raw material prices and related costs escalate. DTH, a wholly owned subsidiary, is also the largest duck player in the Netherlands, with around 97% market share in the country. As such, the farm-gate duck price is less volatile (or more stable) than chicken and we have never witnessed a duck oversupply. 

Substantial capacity expansion around the corner

BR has capacity expansion plans in the near future. The reconstructed parent stock farm and three new commercial farms will add 6.5m ducklings in capacity and 1m ducks per annum, respectively. Moreover, the firm plans to install new machinery for a capacity increase at its existing slaughterhouse; and to construct a new slaughterhouse—the latter of which will add capacity of 9m ducks per annum. As such, the total slaughtering capacity would be 27m ducks per annum after the completion of the new slaughterhouse. 

Benefit from USD appreciation to outweigh effect of EUR weakness 

BR’s Netherlands operation is fully and naturally hedged by its cost structure denominated in the EUR currency. But half of BR’s export revenue (~17% of total revenue) is pegged to the USD. With the combination of currency exposure, the strength in USD will outweigh the effect of EUR weakness. Based on our stress test, every Bt1/US$ depreciation will boost NPAT by 4.8-5.1% during FY15-17—while every Bt1/EUR appreciation would impact NPAT by a meager 0.3%.