Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)   

 

- To rebound in 2H15  

CPF has been affected by the sluggish economic recovery in Thailand and fluctuating currencies worldwide, which made exporting more difficult. Thus, the company slashed its revenue growth target in 2015 from 10%yoy to 5%yoy. China’s yuan depreciation has had a limited effect on CPF since CNY was initially stronger than usual and the company’s export volume to China is insignificant. CPF estimated 2H15 revenue growth at 10%yoy. For the local business, an average domestic pork price in 3Q15 is B70.1/kg, increasing 5.9%qoq (but decreasing 9.2%yoy), and the shrimp business has gradually improved. For the overseas business, a good growth can be seen from China and Vietnam. However, the conglomerate chicken business in Turkey would face more loss than 1H15 because chicken export to the Middle East has become harder as a result of the political problem, thus partly negating the aforementioned positive factors. 

- Cut forecast to reflect weaker THB 

We increase CPF’s net profit forecast in 2015 by 14% but cut the forecast in 2016 by 15.3% to reflect changes in key assumption: Fx rate, SG&A/sales, and extraordinary revenue in 2015. According to the new forecast, FY2015 net profit would still weaken 19.7%yoy and FY2015 profit before extraordinary revenue would fall as much as 47.8%yoy, reflecting the sluggish economic rebound and weaker domestic livestock prices when compared with 2014. For 2016, profit before extraordinary revenue would grow significantly by 151.1%yoy from the hope about the economic recovery and benefit from consolidation of Savernaya and Woyskovitsy (S&W) in its financial statement, which would increase CPF’s net profit by B1.7bn (22% of FY2016 net profit forecast). 

- New fair value is B24 

We recommend buying CPF. Fair value after the forecast revision decreased from B26 (based on PBV of 1.61x) to B24 (based on PBV of 1.48x). The share price has substantially absorbed negative factors and earnings tend to improve in 2H15, so there is a good chance that CPF will outperform the market again.