Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF) 

- 2Q14 net profit better than expected due to extraordinary profit
2Q14 net profit was reported at B3.55bn, climbing 73%qoq and 116.8%yoy
mainly thanks to higher-than-expected extraordinary profit. Excluding
extraordinary items, 2Q14 normalized profit was B2.19bn, slightly lower
than expected but rising 16.2%qoq, thanks to the following contributions:
1) For livestock business in Thailand, pork price rose by 8%qoq while feed
mill raw material cost did not increase significantly thanks to its
inexpensive feed stock from early-2014.
2) The livestock business in Vietnam rebounded significantly because the
oversupply problem receded. Shrimp business also recovered
continuously after EMS problem subsided.
- Revise up FY2014-2015
2H14 profit might possibly grow beyond projection; livestock export is
projected to rebound because the tension between Russia and western
countries and Japan's ban on import of chicken from China would increase
CPF's orders from trading partners. Moreover, feed mill raw material price
has been declining; projection on the US's larger production of feed mill raw
material has relieved concern on feed shortage problem. We revise up net
profit forecast by 6.3% in 2014 and 5.4% in 2014.
- New fair value is B34
We upgrade our recommendation from HOLD for dividend to BUY. Under the
new revision, FY2014 fair value is revised up from B29 (GGM, 2.1x PBV,
15.8% long-term ROE) to B34 (GGM, 2.1x PBV, 17.2% long-term ROE),
implying 17% upside. CPF's interim dividend will be paid at B0.30/share
(1% dividend yield). XD date is August 26, 2014; the dividend will be paid
on September 12, 2014.