Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)
 

Above estimate: CPF reported a Bt2.4bn net profit for 4Q11, up 17% YoY but down 53% QoQ. There were three extra items: 1) a Bt182m FX gain, 2) a Bt498m trading gain on CPALL shares and 3) a Bt260m deferred tax credit. Excluding those extra items, core earnings rose 38% YoY but declined 70% QoQ. The firm announced a Bt0.60 DPS for 2H11, a 2% yield.
The reported 4Q11 net profit was 16% above estimate, due to higher-than-modeled extra items—the gain from trading CPALL and the deferred tax credit (we had expected a deferred tax provision). However, core profit was 37% below estimate because SG&A and interest expenses were higher than we assumed. Pre-tax profit undershot our model by 37%.
Results highlights: The QoQ drop in core earnings was attributable to low season for exports and aquaculture, a seasonal jump in SG&A and weaker overall overseas operations, especially in Turkey, Taiwan, India and Vietnam. The YoY core profit jump was led by OPEX containment and a shallower net loss at the Turkish unit (Bt180m against Bt300m in 4Q10). Other overseas operations posted weaker YoY numbers. Taiwan and India turned their first quarterly losses for years—Bt20m for Taiwan, due to heightened competition, and Bt70m for India. Russia posted a Bt86m net loss, flat YoY.
Outlook: We forecast a good 1Q12 net profit with the recognition of a one-off Bt3-4bn gain from revaluing CP Vietnam. But core profit will be flattish YoY, given weaker domestic operations, which we expect to offset the effect of the Turkish unit breaking even and one month of CPP consolidation. The margin is slim on domestic chicken sales—a Bt35-36/kg farmgate price range against a Bt33-34/kg cost of production. Pork is running at a loss—a Bt50-52/kg farmgate price range against a Bt53-54/kg cost of production.
What’s changed? We have revised up our FY12 profit forecast by 1%, so our YE12 target price rises to Bt38.
Recommendation: Our TRADING BUY rating stands. Despite the flat core 1Q12 earnings outlook, we expect meat product prices to rebound by June, led by a meat consumption recovery.