Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CFP) 
Investment thesis
Following the preview meeting, we have diminished expectations for 3Q13 numbers—shrimp operations are proving a killer. Hence, we have cut our FY13 core bottom-line estimate to a Bt1.1bn loss (from a Bt194m core profit). Our TRADING BUY rating stands, premised on sustained good livestock margins and a shrimp recovery in FY14.
A core loss estimate for 3Q13
We estimate a Bt2.47bn net profit for 3Q13, up by 3% YoY and 52% QoQ. But stripping out gains from FX and trading CPALL shares, we expect a Bt282m core loss (67% shallower QoQ, but a reversal from the Bt1.62bn core profit posted for 3Q12). The expected YoY dive is due to weaker shrimp and overseas operations (specifically Turkey, Russia, Malaysia, Philippines and Vietnam) and a lower equity contribution from CPALL. The assumed QoQ jump is led by high season for exports, financially stronger operations in India, Malaysia and Vietnam (chiefly, modestly better QoQ numbers for livestock and shrimp) and fatter domestic livestock margins.
We expect the 3Q13 shrimp operation to incur a net loss in the region of Bt1-1.5bn (flattish QoQ). The record raw shrimp price in 3Q13 would have pumped up raw material costs and made for even more deeply negative margins for the processed food unit (which we think would have outweighed the effect of a modest rise in shrimp feed sales). Furthermore, CPF has incurred additional R&D costs tied to fighting Early Mortality Syndrome (EMS). 
The Turkish unit looks set to post both YoY and QoQ deterioration, due to an ongoing livestock oversupply in that country. We expect the Indian operation to report a big YoY and QoQ jump in its bottom-line, thanks to a stronger shrimp operation (India remains one of only a few shrimp exporting countries where EMS disease hasn’t yet broken out). The Chinese feed unit should report flattish QoQ numbers.
Domestic livestock margin is expected to report a YoY and QoQ rise, led by higher livestock prices in the face of lower raw material costs. The mean chicken price in 3Q13 was Bt45/kg, up 25% YoY but down 4% QoQ. The mean pork price was Bt70/kg, up by 23% YoY and 4% QoQ. The mean corn price was Bt9.30/kg, down by 16% YoY and 9% QoQ. The mean soybean meal price was Bt17.3/kg, down by 17% YoY and 4% QoQ.
Shrimp industry to normalize in 2H14
Our best-case scenario for shrimp is now a slow recovery through 1H14 and normalization in 2H14. Shrimp farmers have proved hesitant to return to the industry, due to fears of new losses.