GFPT

GFPT Plc 

 

After making through the lowest point for earnings 2016 in 1Q16, we look for better earnings in 2Q16-3Q16F from seasonality, higher margin on wider broiler price and feed cost gap, and stronger equity income off last year’s low base. GFPT’s share has underperformed the SET by 4% over the past three months, not yet reflecting its solid earnings ahead. Maintain BUY with 12-month SOTP TP of Bt16. 

 

Broiler price to improve. Local broiler price rose slightly to Bt37/kg in April (+5% YoY and +3% QoQ), and GFPT expects this to continue. First, the hot weather and drought has slowed supply growth and has brought supply damage. Second, higher prices on day-old chicks and retired chicks (+10-20% QoQ and YoY) over the past few weeks are leading indicators that reflect tighter supply. Third, the surge in swine price to Bt68/kg in April (+9% YoY and 7% QoQ), widened the gap on swine and broiler price to Bt31/kg (above the 3-year average of Bt27/kg). If this continues, it will support a pickup in broiler price. GFPT expects export prices to improve in 2H16 from the low US$4,200/ton in 1Q16 (-7% YoY). Exporters in Brazil (the world’s main broiler exporter) recently bumped up export prices to Europe and Japan by 5-7% to compensate for the strengthening in the BRL/US$ of 10% in 2016TD (vs. 2% for the THB/US$).   

 

With avian influenza under control in the US, GFPT expects the ban on the import of breeders from the US to Thailand to be lifted in mid-2016. As demand and supply is moderate now, GFPT does not expect any impact on the Thai broiler industry.   Sales volume to rise. GFPT maintains its 2016F sales volume growth target of 5%. In 1Q16, food sales volume (48% to sales) picked up by 7% YoY from better exports, indirect exports to McKey, and a better local market. Its farm sales volume (29% of sales) was flat with more volume to GFN offset by lower volume outside. Feed sales volume (24% of sales) dropped by 6% YoY from stable animal and aquatic feed sales but a reduction in shrimp feed sales volume (-32% YoY, 6% of sales) from the drought and more competition with fully-integrated players. In 2Q16, GFPT expects its food and farm sales volume to improve. Its feed sales volume should pick up QoQ on seasonality but will still be weak YoY from the shrimp feed segment.  

 

Healthy margin with low feed costs. GFPT maintains its 2016F gross margin target at close to 13% (vs. 12.2% in 2015), with more volume, better product prices, and stable or lower raw material costs (corn and soybean meal) on abundant supply. In April, corn price was Bt8.9/kg (-9% YoY and flat QoQ), while imported soybean meal price was Bt15.1/kg (-10% YoY and -7% QoQ). GFPT keeps its raw material inventory at about 2-3 months now, and this might increase to 4-6 months once it believes that raw material prices are heading toward a rise.  

 

Solid equity income ahead. One of GFPT’s key drivers in 1Q16 was its strong equity income of Bt106mn (+808% YoY), after GFN saw an earnings turnaround on more high-margin product capacity since mid-2015 plus a better showing by McKey from better product mix. This is set to continue in 2Q16, off last year’s low base and more capacity from GFN together with better product mix from McKey.