Charoen Pokphand Foods

Charoen Pokphand Foods Plc (CPF)

Investment thesis  

Based on CPF’s recent announcement of overseas meat prices for August, we expect its ex-Thailand livestock and shrimp units to post fatter YoY and QoQ margins, led by greater export volumes by offshore units (high season) and stronger livestock and shrimp prices. Declines in raw material prices, which started in August, will fatten margins during 4Q14-1H15. CPF is our top pick in Food space, premised on a core earnings jump in FY15. 

High overseas livestock meat prices expected in 2H14 

Livestock prices were high in August and are expected to be sustained high in 2H14-1H15, due to tighter global livestock supplies as a result of the Russia-Ukraine crisis and sanctions imposed by the US and EU and food safety issues in China. Pork prices in Russia, Vietnam and Taiwan were exceptionally high during 8M14. Chicken prices in Vietnam, Laos and Cambodia jumped during 8M14. The chicken price in Turkey rose modestly during 8M14.  

The mean August chicken prices of CPF’s key overseas markets were as follow—35,983 VND/kg in Vietnam (up by 14% YoY and 54% since Jan), 2.86 TRY/kg in Turkey (up by 8% YoY and 5% since Jan), 14,662 LAK/kg in Laos (down by 2% YoY and 30% since Jan), 8,025 KHR/kg in Cambodia (up by 2% YoY and 14% since Jan). Only the chicken price in India was weaker in August—64.8 Rs/kg (down by 17% YoY and 15% since Jan). 

The mean August pork prices of CPF’s key overseas markets were as follow—51,742 VND/kg in Vietnam (up by 15% YoY and 10% since Jan), 106 RUB/kg in Russia (up by 49% YoY and 51% since Jan) and 7.91 MYR/kg in Malaysia (up by 45% YoY and 8% since Jan). 

The overseas shrimp operational recoveries, 2H14-FY15

CPF’s overseas shrimp units, including Vietnam and Malaysia, have recovered faster from EMS than Thailand. India has no EMS. Overseas shrimp prices bottomed out in June—Vietnam (down 38% since Jan), India (down 43% since Jan) and Malaysia (down 25% since Jan)—thanks to greater shrimp output. Shrimp prices rose in August—Vietnam (up 30% since June), India (up 19% since June) and Malaysia (up 7% since June)—led by greater export demand during 3Q14 high season. Hence, CPF’s overseas shrimp units will post better YoY and QoQ numbers for 3Q14, led by high shrimp prices and sales volumes.

The August shrimp prices of CPF’s overseas units were as follow—147,900 VND/kg in Vietnam (up 2% YoY but down 20% since Jan), 338 Rs/kg in India (down by 16% YoY and 32% since Jan), 23 MYR/kg in Malaysia (up 7% YoY but down 20% since Jan).