GFPT

GFPT Plc

Profitability turnaround: We forecast 2Q13F profit of Bt204mn with gross margin of
9.7%. Associates GFN and McKey are expect to contribute Bt32mn in 2Q13, turning up
from a loss of Bt24mn in 2Q12 and +12% from the previous quarter. We are raising our
forecast contribution from these to Bt123mn in 2013 and Bt174mn in 2014. Sales
volume and prices should both go up after regaining the ability to export to the EU.
Less competition from supply cut. According to the latest industry update, CPF has
the biggest market share at 20-25%, with Saha Farm at 15%-20%, Cargil 15%, Betagro
10-15%, and GFPT at ~10%. 2012 was a bad year for broiler producers, most of which
faced operating losses due to a drop in chicken prices from oversupply accompanied by
a surge in feed raw material prices from supply problems in the U.S. and Latin America.
After the EU lifted its ban on chicken meat from Thailand in 2H12, many operators
boosted capacity to serve the new orders, especially Saha Farm. However, Saha Farms
is now apparently facing severe financial problems, is unable to buy the chicks to raise,
and broiler production will thus be slashed for at least nine months – the time it takes
to raise a chick to adulthood. This will cut competition in the industry.
Expect better performance in 2H13. We expect GFPT’s gross margin to strengthen
to 11.3% in 2013 and 11.6% in 2014 from only 6.5% in 2012. Currently, broiler price has
climbed to Bt46-47/kg from Bt41/kg in 1Q13 and Bt36/kg in 2012. Moreover, the second
and third quarters are traditionally the highest for chicken exports. Raw material costs,
both corn and soybean meal, are falling from peak in 3Q12 to normal levels and this
should be seen clearly in 2H13 with a fall of 15%-19% from peak (soybean meal price
peaked at Bt21/kg). The ease back in raw material prices and supply cut in the broiler
industry is helping bring average selling price up and we expect this to be very clear in
2H13. Margin will also get a boost from the rise in byproduct prices to Bt20/kg from
Bt8-10/kg last year.
BUY and lift target price to Bt9.8 from Bt9.2/share. GFPT is looking at a
substantial improvement in earnings in 2013 after tumbling in 2012 because of a
narrowed margin. We have raised 2013 and 2014 forecasts slightly after raising our
estimate of equity sharing from GFN and McKey, backed by buoyant chicken exports
and rise in domestic byproduct prices. GFPT should be trading at a lower PER than CPF
and TUF (target at ~14x in 2014 PER). We set GFPT’s target price based on 12x PER in
2014, reflecting its lower gross margin (11-12%) than CPF and TUF (13-15%). This gives a
new target price of Bt9.8/share.