Charoen Pokphand Foods
Growing regional food giant
Price Target : Bt42.00 (Prev Bt40.00)
Acquiring HK-listed CPP for Bt66bn, through equity, debt and internal cash
CPP offers high growth potential with operations in China and Vietnam; CPF’s FY12F sales to be boosted by 46%; FY12-13F earnings raised by 17-21%
Maintain BUY, TP nudged up to Bt42/share offering hefty 37% upside potential
Acquiring CPP. CPF announced its 74.18% stake acquisition of of Hong Kong-listed C.P. Pokhand Co., Ltd (CPP), the second largest feed producer in China that also has a 70.82% stake in Charoen Pokphand Vietnam (CPV), the largest feed and food business in Vietnam, for Bt66.3bn (US$2,174m). The acquisition price is based on acquiring 18.8bn shares of CPP at HK$0.9/share, implying 11.83x PE (based on last 12 months) , PBV of 3.94x, and EV/EBITDA of 7.8x, which is comparable to CPF’s current valuation of FY11F PE of 12.4x, PBV of 3.1x, and EV/EBITDA of 9.1x, and is also undemanding vs peers’ M&A in Hong Kong. The acquisition will be 31.4% (Bt20.8bn) funded by equity financing through the issue of 694m new shares and the balance of 68.6% (Bt45.5bn) will be largely through via debt.
EPS accretive. CPF will become a top ranked livestock and aquaculture company in Asia with operations in 12 countries. We expect CPF’s FY12F revenue contribution from overseas businesses to jump to 50% in FY12F from 26% projected in FY11F. Assuming 15% p.a revenue growth for CPP (including CPV), the acquisition will enhance CPF’s FY12F revenue by 46% (assuming consolidation starts from Mar12). Hence, despite anticipated higher interest expenses (Bt1.8bn p.a.) and 9.4% share dilution effect, FY12F EPS would still grow 17% to Bt2.9. And, EPS growth should escalate in FY13F by 20% to Bt3.48 with full year consolidation of CPP as well as its strong earnings growth
TP raised to Bt42, reiterate BUY. Accounting for the acquisition of CPP, FY12F and FY13F earnings are raised by 17% and 21%, respectively. Accordingly, our TP is raised to Bt42/share pegged to 14.5x FY12 PE (+0.5SD of its average 7-year historical PE).
