Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

Rough path in 2012, believing to grow outstandingly in 2013
CPF has admitted that the operating result in 2012 would turn out to be lower
than anticipated (as net profit in 4Q12 is projected to stumble continually);
however, the company is confident that the net profit in 2013 would grow
notably once again because of the following reasons. 1) Thai meat price has
given an obvious signal of recovery during the past month, especially chicken
price that has increased since entrepreneurs have cut the production capacity
after a long time of loss and the epidemic in some areas. Accordingly, less
chicken products have been launched into the market while the export of
frozen chicken has leaped after many more countries have approved the
import of Thailand’s fresh chicken. At some level, the excessive amount of
domestic meat has been eased. 2) The global prices of main raw materials
(corn and soybean meal) tend to decline during 2H13 as a result of flooding
amount of production which is a result of more domestic farmers who have
been attracted by the appealingly high price. 3) The international business
(56% of total revenue) has a chance to thrive continuously since CPF has
focused on the growth of business in China, Vietnam, and India. These are
countries with the economic growth in a high level while there’s not much
consumption. Moreover, the company has strengthened its brand until it has
become accepted by most people. Accordingly, CPF is advantageous for its
aggressive operation and also has higher competitiveness compared with
peers in each country.

Revise down 2012-13 forecast… but 2013 norm profit projected to grow 57% YoY

We revise down 2012-13 net profit forecast by 26% and 19% respectively to
reflect 3Q12 net profit that is lower than projected and the average gross
margin in 2012-13 that is overestimated. Nevertheless, we maintain our
positive prospect for CPF’s operating result (before extraordinary item) in
2013 that would grow significantly by 57% from 2012 due to the following
reasons. 1) The total sales in 2013 tend to grow by 15% YoY because of the
growth of international business and the recovery of domestic selling prices
of meat (chicken and pork). 2) 2013 gross margin is projected to rise to
15.05% from 12.34% in 2012 due to the prices of main raw materials (corn
and soybean meal) that are likely to weaken during 2H12 which would be
beneficial for the margin of animal farming business (31% of total revenue).
3) Profit sharing from associated company in 2013 is projected to increase by
20% YoY due mainly to net profit of CPALL (CPF holds 31% stake) that tends
to grow by 20% YoY.


Share price substantially reflects negative factors already… only wait for recovery in 2013
After forecast revisal, new fair value, using 17x PER, at end 2013 stands at
B38.38 (from B47.61). We’re convinced that the share price has already
survived correction, substantially reflecting negative factors from 2H12
operating result. Accordingly, this is a good chance for accumulation and
waiting for the recovery of operating result in 2013.