AGRI-FOOD

AGRI-FOOD

-THB weaker than expected due to political unrest, speeding up fund outflow
THB has been depreciating due to foreign fund outflow caused by the
unpredictable political unrest and continuously slowing economy. We have
recently revised down FY2014 GDP growth forecast from 4.3% to 3.3%.
Moreover, it is possible for the MPC to slash the policy rate by 0.25% (currently
2.25%) at its coming meeting on 22 January, speeding up fund outflow.
Recently, THB has slid past B33/US$, weaker than our preliminary assumption of
B31.5/US$. Therefore, we revise up FY2014-2015 Fx rate assumption to
B33/US$, up 4.7%.
- FY2014-2015 profit to increase. CPF and TUF benefit greatly
Rapid depreciation of THB benefits agriculture-food sector. According to our
study, every B1 weakened would increase the sector's net profit by 3.8%. Under
the new revision, FY2014-2015 net profit would be revised up by 4.6% and
4.4%, respectively. STA would be the most advantageous. 85% of its profit
is in US$, while only 20% of its cost and below 10% of its debt are in foreign
currencies. Thus, STA's profit would increase by 7.4% in 2014. The next most
advantageous company is KSL. 68% of its income is in foreign currencies
(mainly US$), while only 5% of its cost and a little proportion of its debt are in
foreign currencies. However, because of futures contract strategy in sugar deal,
as well as fixed exchange rate in the contract, its additional profit in FY2014
would be lower than it should be. CPF, TUF and GFPT are also
advantageous. 65%, 90% and 30% of their income is in foreign currencies.
However, 50%, 80% and 20% of their cost is in foreign currencies, as well as
some proportion of their debt, partially negating their benefit from weak THB.
Thus, their FY2014-2015 net profit would increase by 4.4%, 3.9% and 3.3%,
respectively. Overall, the sector's FY2014-2015 net profit is projected to increase
by 45%yoy and 20%yoy, respectively. Aside from weakening THB, the sector
would also benefit from recovery in shrimp business, as disease problem has
subsided. Livestock business (pork and chicken) would also benefit from a
decrease in feed mill raw material cost. Moreover, Japan has lifted a ban on
imports of Thai frozen chicken from end-2013 on, increasing Thai chicken export
volume.
- "OVERWEIGHT". Top picks are TUF and CPF
We reiterate "OVERWEIGHT" for agriculture-food sector. Top picks are
TUF([email protected]) and CPF([email protected]). Disease problem in shrimp
business has subsided, benefiting TUF and CPF (shrimp business
making up 20% and 13% of total revenue, respectively). We also
recommend buying GFPT([email protected]). It will get the largest benefit
from the ban lifting as the slaughtering house and processing chicken
businesses comprise 65% of its total income and it possesses 12%
share in the Thai chicken export market.