Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)

Turnaround for core businesses in 2014
According to the analyst meeting, CPF has been confidence that FY2014 profit
would rebound significantly. Overall sales volume is projected to grow by over
10%yoy owing to the following factors: 1) For domestic businesses, CPF's
livestock business (hog and chicken) is projected to benefit from decreasing raw
material cost. Chicken price is likely to stay high due to low supply. Though
poultry farmers have been expanding their production capacity, it is not likely to
meet the demand because Japan has resumed importing Thai raw chicken,
significantly boosting Thailand's chicken export in 2014. CPF's aquaculture
business (shrimp feed, shrimp farming and processed shrimp) are likely to
rebound to profit from 2Q14 on, as shrimp farmers have resumed raising
shrimps. Sales of young shrimps have increased from 1 billion young
shrimps/month in 1H13 to 1.7 billion young shrimps/month, signaling recovery
in Thailand's shrimp business. 2) Overseas businesses are expected to recover.
Profit from livestock business in Vietnam is likely to improve after oversupply
problem has subsided. Moreover, Profit from livestock business in India is likely
to grow after previously massive investment. Overall, we maintain CPF's
FY2014-2015 earnings forecast; projecting net profit to grow by 57%yoy and
32%yoy, respectively.
- 4Q13 profit drops 33.7%qoq
CPF's 4Q13 net profit was B1.75bn, falling by 33.7%qoq but leaping six folds
yoy (lower than expected), as profit from fund selling was booked at only
B1.75bn (expected at B2bn). Excluding extraordinary items, CPF's 4Q13
normalized loss was B61m (slightly lower than expected; versus B887m
normalized profit in 3Q13), as a result of these factors: 1) Profit from domestic
businesses declined qoq. Livestock business was affected by low season and
livestock product priced fell while feed mill raw material cost stayed high, close
to 3Q13. Moreover, Shrimp business faced loss. Though shrimp farmers could
prevent EMS, a small amount of shrimp products was raised and sold in the
market because 4Q13 and 1Q14 was a low season for shrimp business. 2) Profit
from overseas businesses declined slightly qoq. Profit from feed business in
China dropped as it was a low season for livestock business. Overall, FY2013 net
profit was B7bn, contracting 62.4%yoy
- 2H13 average dividend yield at 1%
We reiterate to buy. FY2014 fair value (GGM, 2.2x PBV) is B33.80, implying
23% upside. 2H13 dividend is B0.25/share (1% dividend yield). XD date is 6
May 2014, and dividend will be paid on 23 May.