Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)

CPF’s sales and margins managed to hold up in 2Q, defying higher input prices and low meat prices. Adjusting for one-offs, 2Q core earnings were below consensus and our expectations only due to higher taxes. We remain positive after its recent results briefing. 1H core formed 44% of our full-year number and 46% of consensus, from an increase in CPF’s overall effective tax rate post the CPP consolidation.Therefore, we lower our FY12-14 earnings and trim our SOP target price to THB44 accordingly. Maintain Outperform with catalysts expected from strong CPP performance and margin improvements in 4Q. 

Operations held up in 2Q
Revenue grew 27% qoq to THB93bn,with 1H revenue of THB 167bn making up 50% of our FY12 forecast,which is 11% above guidance. Gross margins were steady in 2Q at 13.6%,though down from 18.1% a year earlier, as meat prices continued to fall while input costs continued to climb. 2Q EBITDA margins expanded 61bp to 7.57% as operating costs increased slower than revenue after
CPP’s consolidation.

Diversification paying off
CPP’s revenue growth in 1H was in line with our estimates. Its China feed business held up particularly well,with the aid of: 1) strong domestic demand; and 2) the domestic sourcing of corn and soybean inputs, which had insulated CPP from a sharp jump in US prices.
 

Outlook remains bright
Despite recovering shrimp and chicken prices in Aug, we expect meat prices to remain low in 3Q. We maintain that margins could improve by 4Q as oversupply eases. Further improvements through 2013 are expected as raw-material prices normalise, increasing earnings and margins significantly. We maintain our Outperform call with our SOP target price revised from THB45 to
THB44.