GFPT

GFPT Plc

 

Investment thesis

We have witnessed a more stable domestic chicken price and a slight price recovery in November after October’s vegetarian festival. The chicken supply is expected to be reduced further from December ahead of the festive high season and Chinese New Year. The positive impact from the breeder supply shortage on the live chicken and domestic byproduct sales prices is expected from 2Q16 through to 2H16. In anticipation of higher byproduct sales price and export sales volume and more stable or slight increases in raw material prices in FY16, we expect stronger FY16 earnings growth. If pegged with the FY16 PER of 14x (assuming the mean chicken price of Bt42/kg in an upturn cycle), we would derive the PER-based target price of Bt14.15. Our BUY rating stands with our YE16 PEG-based target price of Bt14.  

Recent slight recovery of chicken price  

The live domestic chicken price has stabilized and started to recover slightly from Bt34/kg from Nov 2-15 to Bt35/kg from November 16-26, following its drop during Sep-Oct led by the prolonged rainy season and the vegetarian festival. The industry-wide chicken supply remains in surplus, based on the slaughter rate of 30m birds/week in Nov (down from 31.5m/week in 3Q15 and 32m/week in Oct). We expect it to be reduced to 29m/week starting in 2Q16, due to lower chicken supply caused by parent stock shortage from the bird flu in the US and UK in 2015. The Department of Livestock Development has still banned the import of chicken breeders from the US and the UK. Hence, we expect a stronger price momentum in Dec through to 1Q16 (led by high season and the Chinese New Year festival) before a bounce in 2H16.  

Earnings in 1H15 look set to bottom out

We reiterate our Bt270m net profit forecast number for 4Q15, down 27% YoY (lower export volume and byproduct prices) and down 17% QoQ (low season for export). Although the mean domestic chicken price remains at a low level in 4Q15, after the rainy season carried on into November, we expect blended GM to improve QoQ to 12-13%, led by lower corn and stable soybean meal (SBM) prices. We expect its earnings to start revealing YoY rises from 1Q16 onwards. Its quarterly earnings bottomed out in 1H15 (Bt218m in 1Q15 and Bt200m in 2Q15). 

Pricing and sales volume to recover in 2016   

Based on the scenario above, we assume the mean live chicken price of Bt42/kg in FY16, up 11% YoY (from Bt38/kg average in FY15) and hence; its higher domestic byproduct sales price. The domestic chicken bone sales price will rise from Bt9.5/kg in FY15 to Bt12/kg in FY16. The chicken export volume is estimated to rise 7% in FY16, based on more stable currencies of importing countries against USD, following its export volume bottom-out in 1Q15. Regarding raw material prices, we assume the slight price increases of 5% YoY for both corn and SBM in FY16. We expect drought to have an impact on the domestic corn price during 1H16 before its price declines during harvest season in 3Q16.