Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)

Exceeding our estimate  
CPF reported a Bt1.76bn net profit for 4Q13, up 638% YoY but down 34% QoQ. Excluding extra items in 4Q13—a Bt60m FX loss and a Bt1.4bn after-tax gain from trading CPALL shares—core earnings would be Bt416m, a YoY turnaround from a Bt1.7bn core loss in 4Q12, but down 76% QoQ. The reported net profit overshot our estimate by 151%, due to larger extra gains than assumed. In core terms, we had estimated a Bt200m loss—sales beat our assumption by 6% (led by livestock sales) and GM was 11.4% (we had assumed 10%).
Result highlights
The YoY core turnaround was driven by a shallower loss at the shrimp unit and fatter domestic livestock meat margins (higher domestic meat prices and a lower corn price). The QoQ core drop was due to low season for exports and aquaculture (lower shrimp output) and deeper losses in Turkey, India, Russia and the Philippines. The domestic shrimp unit posted a Bt1.1bn operating loss in 4Q13, shallower by 26% QoQ. Most overseas units—Turkey, India, Taiwan, Russia, Malaysia and the Philippines—posted weaker YoY bottom-lines. Only Laos, Cambodia and CPP (including Vietnam) saw stronger YoY numbers. 
Turkey reported a Bt450m net loss for 4Q13, deeper by 13% YoY and 73% QoQ—there is a persisting meat oversupply in that country. India posted a Bt290m net loss, deeper by 26% YoY and 867% QoQ, due to falls in livestock meat prices. The Malaysian operation reversed from a net profit of Bt10m in 4Q12 to a net loss of Bt125m in 4Q13, but the loss was 4% shallower QoQ. Russia and the Philippines posted deeper YoY and QoQ losses for the quarter. CPP (including Vietnam) reported a US$61m net profit, up 45% YoY but down 4% QoQ.
Outlook
We expect core earnings to jump in FY14, led by the shrimp unit breaking even in 2Q14 or 3Q14 (the progress of the shrimp recovery was slowed by unusually cool weather in January), fatter livestock margins as a result of lower raw material prices and sustained high meat prices and shallower losses (and perhaps bottom-line turnarounds) at overseas units—Turkey, India and Malaysia (on the easing of livestock oversupplies and better shrimp numbers). We estimate a Bt800m core profit for 1Q14, up 92% QoQ and a turnaround from the Bt576m core loss in 1Q13.
What’s changed?
Our FY14 net profit forecast stands unchanged.
Recommendation
We rate CPF a BUY, premised on an FY14 core earnings recovery.