Charoen Pokphand Food
Benefiting from high season, M&A deals BUY
Charoen Pokphand Food Plc (CPF)
- Core business to rebound, revive profit in 3Q15
- 3Q15 net profit is estimated at B3.1bn, rising 3.0%qoq. Excluding B1.5bn extraordinary profit from investment selling, normalized profit is expected at B1.6bn, reviving from normalized loss of B53m in 2Q15. The domestic business is projected to improve mainly from export since overseas orders have been increasing as the year-end long holiday is approaching. 3Q15 average domestic pork and chicken prices has risen by 8.5%qoq and 1.9%qoq, respectively, because meat consumption has been high during school semester. The shrimp business is projected to recover gradually, facing less loss compared with 2014. For the overseas business, the feed business in China and the livestock business in Vietnam would stay strong, while the chicken business in Turkey would still face loss due to the political unrest and the business in India is projected to be weakened by chicken oversupply problem.
- Focus on rebound in 2016
We are working on CPF's 2015 earnings forecast, possibly revising up our projection by 28% to reflect additional profit from investment selling in 2H15. Excluding extraordinary items, normalized profit is still expected to fall 47.8%yoy as a result of the economic deceleration, low livestock price (especially chicken price due to oversupply problem), and slowing shrimp business. FY2016 net profit is estimated to fall 8.7%yoy because no extraordinary profit is included in the forecast yet. Excluding extraordinary items, 2016 normalized profit is expected to surge by 151.1%yoy from the weak base in 2015 since the economy would recover and 2016 earnings from S&W would be booked, projected at B1.7bn or 22% of CPF's earnings.
- Share prices starts to reflects business recovery
We recommend BUY. The share price has significantly undergone correction and passed its bottom already, likely to reflect potential business recovery in 2016. 2015 fair value is B24; Current PBV of 1.48x is lower than the five-year average. We will switch to use 2016 fair value of B28 after 3Q15 earnings report in mid-November.
