Agri-Food

Agri-Food

- Raw material prices hike to press profit margin
In the contrary to our preliminary forecast, feed mill raw material cost is
projected to surge high in 2014. As a result of worldwide unfavorable weather
for feed production, less corn and soybean meal products (domestic and
overseas) would be sold in the market. Corn price has leapt by 25% from end-
2013, and soybean meal price has risen by 2%qoq. However, domestic livestock
prices are not projected to increase much because it would affect demand. 1) As
Thailand has resumed exporting chicken to Japan since late-2013, mass
production is required. Thus, live chicken price dropped by 11% from end-2013
to B41/kg. 2) As a result of epidemics: porcine epidemic diarrhea (PED) and
porcine reproductive and respiratory syndrome (PRRS), pork product volume has
dropped by 10%, raising pork farm gate price by 21%qoq (making the two-year
highest). However, for consumer protection, the National Swine Farmer
Association has kept pork farm gate price around B76-78/kg in April 2014. High
feed mill raw material cost and limited increase in livestock price are likely to
threaten pork and chicken manufacturers (CPF and GFPT). Livestock business
makes up 65% and 33% of CPF and GFPT’s total income, respectively.
- To revise down CPF and GFPT's earnings forecasts
Food sector’s 2Q14 and 2H14 net profit are not likely to rebound as strongly as
we preliminarily projected. Livestock business has been pressed by increasing
feed mill raw material cost. Corn and soybean meal cost makes up 40% and
24% of CPF’s raw material cost, respectively. CPF and GFPT’s gross margin
would be lower than our projection. However, turnaround in aquaculture
business is expected to boost the sector's profit throughout 2014. Shrimp
business has rebounded significantly after the disease problem has receded and
shrimp farmers have resumed their production, benefiting TUF and CPF (shrimp
and shrimp feed businesses make up 22% and 10% of TUF and CPF's total
income, respectively).
- Switch to TUF and KSL
We downgrade our recommendation from "Overweight" to "Neutral" for the
sector, and from buying to holding for CPF and GFPT. The sector's top picks are
TUF(FV@B76) and KSL([email protected]), as their core businesses have been
rebounding in 2014.