GFPT

GFPT Plc

YTD share down 32%, bad year already discounted: We expect a small profit of Bt29mn in 4Q12, up from a loss of Bt24mn in 3Q12. Main support comes from the 31% rebound in broiler price over the last month to Bt42/kg. For the year we now expect a loss of Bt30mn vs. the small profit earlier expected. Though for the farm business to be profitable next year a further strengthening in broiler price is needed to cover the higher raw material cost and soybean meal price needs to come down sharply after the 1Q13 harvest (both clearer by Jan-Feb), we believe the worst has passed and price looks very attractive. Our new 12 month TP is Bt8.5/sh 

Highlights from analyst meeting:  

Management: recent price jump largely due to supply cut: GFPT’s Executive Chairman (who is also chairman of Thai Broiler Processing Exporters Association) attributes the recent jump in broiler price to recent supply cut by a big industry player. We share his view: in a recent newspaper article in Thaan Sethakij Saha Farm management said it has stopped accepting orders from European customers as the low prices they are demanding are not viable given high feed costs.   

Export prices up in 4Q12, volume also up QoQ: Export prices have risen 5% QoQ in 4Q12, as GFPT is able to pass on cost increases to customers; volume has also increased despite the usually seasonally softer quarter. 

We assume spread of Bt7/kg next year vs. loss of Bt3/kg this year. Based on current broiler price of Bt42/kg and current raw material cost of corn and soybean, we estimate spread at Bt3/kg. We expect spread to rise further next year (mostly in 2H12) from a combination of an increase in broiler price and decline in soybean meal price after the harvest in Latin America in Feb-Mar. 

Excluding inventory loss, bottom line broke even: 3Q12A brought a core loss of Bt24mn, mostly inventory losses. With broiler prices already back up we expect this to reverse. Associate GFPT Nichirei (GFN), in which GFPT holds 49%, also had a lower loss in 3Q12 than 2Q12.

BUY with end-2013 TP of Bt8.5/sh. A review of our 2013 forecast led us to adjust SG&A expense higher, pulling forecast down to Bt905mn from Bt1.18bn. Our TP is based on PER of 11.8x (+1std above historical average) on 2013F profit.