GFPT

GFPT Plc
Investment thesis
GFPT’s share price has been under pressure, due to its FY12 loss-making operation and the absence of a dividend payout. But we think now is a good time to BUY the stock in anticipation of a bottom-line turnaround in FY13, led by a strong recovery in domestic meat operations, improved export sales and a turnaround at GFN, which we expect by 3Q13. We have upgraded our rating from SELL to BUY with a new YE13 target price of Bt9.50, premised on: 1) an FY13 turnaround and 2) an attractive valuation—an FY13 PER of 11.2x.
Saha Farms cut production in 4Q12
Due to the weak domestic chicken price in 3Q12, Saha Farms, Thailand’s biggest chicken processor, cut production to 650K birds/day in Nov 2012. As a result of its Nov production cut, the average domestic chicken price rebounded to Bt41-42/kg in Nov from Bt32/kg in Oct.
Domestic chicken price bottomed out in Oct
We believe that the domestic chicken price bottomed out in Oct and will improve further in 1Q13 in anticipation of further supply-cutting among major chicken operators in 1H13 and greater consumption during high season in 4Q12-1Q13 (after the Vegetarian festival in Oct). We estimate a mean domestic chicken price of Bt43/kg in FY13, up 19% YoY, thanks to supply cutting, cost-push factors and gradually improving demand.
Recovery in domestic meat operations in 2Q13
Management expects its raw material costs to decline, starting Feb. The firm has stockpiled both corn and SBM in silos sufficient for three months. Assuming GFPT’s costs at Bt10-11/kg for corn and Bt18-19/kg for SBM and a mean chicken price of Bt43/kg in 1H13, we estimate a Bt3/kg net profit for the domestic meat operation. Its domestic meat numbers will recover strongly, starting late 1Q13.
Industry chicken export price to rise 10% in 2013
The firm estimates a mean industry cooked chicken export price for 2013 of US$4,900/tonne, up 11%, due to cost-push factors. GFPT will increase its export prices by 5% QoQ in 4Q12 and by another 5% in 1Q13.
FY13 net profit and target price upgrades
We have upgraded our FY13 net profit forecast by 44% to Bt827m to factor in 5-6% increases in mean domestic sales and export prices (for both Japan and the EU). Hence, our PEG-based target price rises by 35% to Bt9.50, pegged to an FY13 PER of 14.4x.