GFPT

GFPT Plc

Investment thesis
Within Food space, we currently prefer GFPT over CPF and TUF, as chicken price dynamics have improved substantially and GFPT is the best play on the chicken industry upturn. Its valuation is now very cheap—an FY14 PER of 9x.
Sustained high domestic chicken price expected in 3Q13
The mean domestic chicken price rose Bt1/kg last week to Bt48/kg and has sustained that level through to now. The 3Q13-to-date mean price is Bt47.20/kg and the YTD mean price is Bt45/kg. We assume a Bt47.5/kg domestic mean price for 3Q13, up by 33% YoY and 3% QoQ. Note that the QoQ increase flies in the face of seasonality—normally chicken prices weaken during the third-quarter.
The current tighter supply environment looks set to prevail through to 2Q14, we believe, due to the supply shortfall brought by problems at Saha Farms. The financially- and operationally-distressed firm previously accounted for 22% of Thailand’s chicken exports. One of its two processing plants was put out of action by a fire; the other is working as far below capacity due to a shortage of working capital and labor. 
Greater chicken export volume in 3Q13
We have upgraded our GFPT 3Q13 export volume assumption to 2,000 tonnes/month, up by 22% YoY and 5% QoQ (our previous estimate was 1,900 tonnes/month). We estimate a mean export price for the quarter of US$4,400/tonne, up by 6% YoY and flattish QoQ. With regard to GFN, we expect it to achieve a full capacity run of 2,200 tonnes/month in 3Q13 following the start-up of its third processed chicken line in May. 
Chicken meat margin expected to rise in 2H13
The domestic corn price stood at Bt8.90/kg as of August 28, down 11% since early January, due to the third-quarter being harvest season. We expect the corn price to slip to Bt8/kg in Sept-Oct. The soybean meal (SBM) price inched up to Bt18/kg in August from Bt16-17/kg in July. Assuming stable raw material prices and a sustained high mean chicken price in 2H13, we expect a fatter chicken meat margin in 2H13.  
GFN to post a higher QoQ profit in 2H13
We estimate GFN’s 3Q13 net profit at Bt95m, up 11% QoQ and a turnaround from the Bt50m net loss it posted for 3Q12. The drivers are higher domestic chicken prices, greater export volume and fatter margin as a result of a full capacity run at its new processed chicken line. Our model indicates that GFPT will report a Bt350m net profit for 3Q13, up 16% QoQ (and a turnaround from the Bt24m net loss it saw for 3Q12). GFPT posted a Bt150m net profit for the month of July.