Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

Japan has officially declared to lift a ban on import of frozen chicken from
Thailand from 25 December 2013 on, after approving that Thailand is free from
avian flu. Thus, Thailand’s 2014 chicken export volume is projected to increase
by 26%yoy to 670,000 ton (preliminarily projected to grow by 7%yoy to
570,000 ton, excluding this positive factor). This would benefit CPF, as it has a
share of 20% in chicken export market. Moreover, despite a decrease in feed
mill raw material cost, Thailand’s domestic living chicken price would stay high in
2014, as chicken export is likely to increase significantly at a faster rate than
production capacity.
- Revise up FY2014 earnings forecast. Core business to rebound greatly in 2014
We revise up net profit forecast by 1.2% for 2014 and 1.0% for 2015 to reflect
possibly increasing frozen chicken export volume after Japan has lifted a ban on
raw chicken import from Thailand. According to the new forecast, CPF's net
profit is projected to grow by 35%yoy. Aside from Japan's resumption of raw
chicken import, CPF would also benefit from shrimp business (20% of total
income) that has rebounded to profit after a disease problem has relieved.
Shrimp farmers have more confidence on disease prevention and resume shrimp
farming. Despite the risk, shrimp business is likely to have high return due to
attractively high shrimp price. Thus, number of shrimps sold in the market is
expected to increase. Livestock business (80% of total income) is likely to
benefit from lower feed mill raw material cost in 2014. Thanks to suitable
weather, large amount of corn and soybean product would be exported
throughout the world, possibly boosting FY2014 gross profit margin to 12.52%.
Moreover, CPF, one of Thailand's leading food exporters, would benefit from THB
depreciation. As 65% of CPF's income is in foreign currencies, whereas 50% of
its cost is in foreign currencies, CPF is the sector's third advantageous company
from weak Baht.
- "BUY". New fair value is B33.71. Lots of positive factors
We reiterate "BUY". We revise up end-2014 fair value (GGM, 2.18x PBV, 17.5%
long-term ROE) from B33.69 to B33.71, implying 8% upside with dividend yield
expected at 2.4%p.a (paid twice a year).