GFPT

We are more upbeat on GFPT’s fundamentals and have upgraded our FY15 earnings projection and YE15 target price (to Bt24) to factor in a greater export volume assumption, led by demand from Japan and Russia. Our BUY rating stands, premised on expectations of greater export volume and a fatter domestic byproduct sales margin in FY15. There could be scope for upside from additional exports to the Philippines in FY15. Export volume jump of 22% expected for FY14

GFPT’s FY14 export volume target of 25k tonnes is way too conservative, we believe, given 1H14 export volume of 13,100t. We forecast FY14 export volume of 27,700t, up 22% YoY (14,600t in 2H14). Export volume in 2H14 will be boosted by greater raw chicken exports to Japan and Malaysia (up by 170t/month in 2H14) and Russia in 4Q14.  

McDonald’s Japan and Russia to boost FY15 export volume

We estimate that Thailand could spare up to 1,700t/month (20k t/annum) of chicken for McDonald’s Japan, starting 4Q14. For McKey—the JV in which it owns 49%—we estimate that production will rise 11% (from 1,800t/month to 2k t/month—its maximum capacity) in 4Q14 to cater to additional processed chicken demand from McDonald’s Japan. Russia used to import 500-600k t/annum of raw chicken from both the US and EU. Assuming that Russia orders 100k t/annum of Thai raw chicken, GFPT could take a 1% share of those new orders, which would add 1k t/annum to its FY15 export volume. 

There would be scope for upside from the Philippines approving processed chicken plants for GFPT in FY15 (Manila has already approved six processed chicken plants owned by CPF and one owned by Cargill Meats Thailand). 

FY15 net profit forecast upgrade—greater export volume 

We have revised up our FY15 net profit forecast by 16% to Bt2.37bn to factor in a 10% higher direct export sales volume assumption to 31k t/annum), due to expected additional sales to Russia and greater equity income from additional orders of 200 t/month from McDonald’s Japan in FY15. Hence, our PEG-based target price rises 20% to Bt24. 

Sustained strong domestic chicken price in Aug-Sept 

The farmgate domestic chicken price has been sustained at Bt45-46/kg since mid-August despite the rainy season and the fact that there are two Vegetarian festivals this year (Sept 24-Oct 2 and Oct 24-Nov 1—there are two ninth lunar months in the Chinese calendar this year). We believe the price has held as a result of tighter domestic supply, brought about by greater exports, particularly to Japan. We expect the domestic chicken to remain high in the Bt40-45/kg range in 2H14-FY15, which would underpin GFPT’s byproduct sales prices.