Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

Q2 2013 projected dull, disease pressing shrimp business
We project that CPF's 2Q13 earnings forecast would still encounter continuous
loss at B484m, recovering from 1Q13 loss at B738m (extraordinary item
excluded), because of the same pressing factors: 1) shrimp business (15% of
total income) hasn't recover from early mortality syndrome (EMS) in shrimps,
pressing shrimps sales quantity and shrimp food business. 2) Business in
Vietnam (12% of total income) is projected to have slightly lower profit than the
previous quarter as livestock in Vietnam is facing oversupply, lowering the price
and presses the profit. Feed business in China is still projected to take
continuously great profit (contract to our previous concern). Though China
previously encountered bird flu, the effect wasn't severe. This quarter, CPF has
only one positive factor from livestock farm in Thailand (15% of total income),
projected to take norm profit from the previous quarter, reflecting from 2Q13
live chicken and hog prices at B47.14/kg and B67.02/kg, rising 14.6% qoq and
7.3% qoq, respectively, whereas the raw materials cost, both corn and soybean
meal, remain unchanged. Overall, as there are many pressing factors, CPF's
2Q13 earnings forecast still shows loss. However, this forecast doesn't include
probability that CPF might recognize profit from extraordinary item e.g. B2bn
capital gain from CPALL investment sale (close to the previous quarter) and gain
from MAKRO investment sale, projected at B1.44bn (CPF hold 1.01% of
MAKRO's share), which is the upside that boost 2Q13 earnings higher than our
projection.
- 2nd half 2013 main business projected to recover, both livestock and shrimp
Though 1H13 net profit is only 4% of FY2013 earnings forecast, we maintain our
FY2013-2014 projection as extraordinary profit from investment sales haven't
been included. 2H13 CPF earning is likely to recover from 1H13 because of: 1)
disease in shrimp has subsided, increasing shrimp product to the market. 2)
Chicken price in Thailand would soar above B47kg (better than our projection)
after Sahafarms (one of Thailand's biggest chicken producers and exporters) has
reduced its productivity due to financial problem, causing less chicken product to
be sold in the market in a short term. There is a concern about raw material
price; the price of soybean meal in the US previously rose due to tight stock as
soybean harvesting season has been delayed. However, if there are more
products in the market in September, it may make soybean meal price fall from
the present price.
- Recommend "BUY", price undergone correction, contrast to recovering fundamental
We set FV at the end of 2013 at B35.23, based on PER of 17x. Stock price has
previously undergone correction that its upside rises to 27%, contrast to the
recovering fundamental. We reiterate "BUY".