Charoen Pokphand Food

Charoen Pokphand Food

Short of our estimate
CPF reported a Bt2.4bn net profit for 3Q12, down by 53% YoY and 40% QoQ. Excluding an Bt850m gain from trading CPALL shares (net of tax), core profit would be Bt1.6bn, down by 67% YoY and 47% QoQ. Net profit was 13% lower than modeled while core profit undershot our estimate by 29%, due to lower sales and equity income than modeled. Gross and operating profits were 8% and 18%, respectively, below our estimates, due to weaker operations than modeled.
Result highlights
The core profit deterioration was attributable to weaker domestic meat and overseas operations, due to a slump in meat prices and a spike in raw material costs. Domestic chicken and pork operations posted net losses for 3Q12. The mean price of chicken was Bt36/kg, down by 13% YoY and 5% QoQ. The mean price of pork was Bt57/kg, down by 24% YoY and 7% QoQ. The costs of chicken and pork production were Bt37-38/kg and Bt59-60/kg, respectively.
All overseas operations weakened except Turkey and Taiwan. The Turkish unit posted a Bt70m net loss (53% QoQ and 22% YoY shallower). India, Malaysia, the Philippines, Laos, Cambodia and Vietnam posted weaker QoQ numbers. The Vietnam operation reported a net loss for 3Q12, due to a dive in meat prices. 
Outlook
Management anticipates a downtrend of raw material prices in FY13—significant declines in 2H13—due to higher productivity. But meat prices will rise in FY13 on supply-cutting, higher export volumes to the EU and disease outbreaks, bringing on stronger meat prices and margins in FY13. China, Vietnam and India will lead overseas growth during the next five years.
Despite the chicken and pork price bounces in Nov, we forecast weak 4Q12 core earnings, due to rising raw material costs, low season for export and aquaculture sales and seasonally high OPEX. We expect earnings to improve gradually in 1H13 with a strong recovery in 2H13, led by significant falls in raw material prices.
What’s changed?
We have cut our FY12 core profit forecast by 21% to Bt8.8bn in anticipation of weaker 2H12 numbers than earlier modeled.
Recommendation
Our BUY rating stands, premised on a strong FY13 earnings recovery.