GFPT

GFPT Plc 

 

Investment thesis

In light of expanded expectations for 4Q15 earnings and FY16 GM (from 12% to 12.6%), we have upgraded our net profit forecasts 11% for FY15 (to Bt1.12bn) and 8% for FY16 (to Bt1.36bn) and our PEG-based target price 10% (to Bt15.5). The gradual export volume gain, domestic price recovery (led by the domestic demand recovery and stable supply) and the low raw material pricing climate (especially soybean meal) are key drivers to its FY16 earnings and GM rises. Our BUY rating stands, premised on FY16 earnings recovery and a cheap valuation. If pegged to PER of 14x (at the FY16 mean chicken price of Bt42/kg), we would derive the YE16 PER-based target price of Bt15.20.      

Expanded export volume forecast for 4Q15

We now estimate GFPT’s 4Q15 export volume to be 6,300 tonnes, up 3% YoY and 19% QoQ, against our previous 5,000-tonne assumption. Clients who held back orders in the previous few quarters have resumed chicken imports in 4Q15 despite the sustained weak global economies and highly volatile FX rates. We assume a sustained strong export volume of 5,500 tonnes in 1Q16, up 8% YoY but down 16% QoQ (low season for exports). We expect a stable export price of US$4,200/tonne in 4Q15, close to 3Q15, led by the shift to more processed chicken sales amid cheaper Brazilian raw chickens.   

Insights into 4Q15—a slight YoY net profit rise

We now estimate a Bt380m net profit for 4Q15, up 3% YoY and 17% QoQ, higher than our previous Bt270m due to a higher domestic byproduct margin and greater export volume than assumed. The marginal YoY rise is led by higher export volume and greater profits from McKey and GFN (greater export volume). The QoQ rise is due to higher export volume, greater byproduct margin (due to the lower corn price) and stronger profit from McKey. 

Despite 6% QoQ lower domestic byproduct sales price, we expect its margin to rise QoQ (led by a corn price slide; down 15% QoQ). We assume GFN’s 4Q15 net profit to be Bt80m, up 42% YoY (but down 24% QoQ) and McKey’s 4Q15 net profit of Bt110m, up 118% YoY and 25% QoQ. The greater export volumes will drive YoY profit rises from both GFN and McKey in 4Q15. We assume Bt4.4bn sales for 4Q15, down 2% YoY but up 4% QoQ and a strong GM of 13.6% in 4Q15, close to 4Q14 and up from 11.7% in 3Q15 (due to the lower corn price).

Marginal scope for upside from raw chicken to South Korea 

South Korean authorities will visit to inspect Thai chicken plants in Feb 2016. If they approve, Thailand could start exporting to South Korea in 2H16 with an initial volume of 10k tonnes/annum before rising to 30k tonnes/annum (or 5% of total export volume). We expect a very slim net margin of 3-5% from raw chicken exports to South Korea. As it is not GFPT’s prime focus, it will export only 100-500 tonnes/annum of raw chicken to South Korea (out of its 22k/annum total export volume), which will impact its annual sales and net profit by less than 1%.