Charoen Pokphand Food
Play
Continue growing in 2015 BUY
Charoen Pokphand Food Plc (CPF)
- Profit grows as expected in high season
3Q14 net profit was reported at B4.2bn, growing 17.3%qoq and 57.0%yoy
(as expected). Excluding extraordinary items, 3Q14 normalized profit was
B2.3bn, rising 5.9%qoq and 161.0%yoy (18.6% lower than expected) due
to the following factors: 1) Domestic business benefited as chicken price
climbed by 7.0%qoq (but falling 4.0%yoy). Livestock prices rose from 2Q14
thanks to high season for food export, while feed mill raw material cost did
not change much. 2) Overseas business showed higher profit than 2Q14
thanks to the significantly growing livestock and aquaculture business in
Vietnam and Russia. However, share of profit from associates fell by
4.4%qoq and 6.7%yoy (24.7% lower than expected), and interest expense
increased by 32.2%qoq and 9.6%yoy (30.4% higher than expected).
- Rebound foreseen in 2015
Despite delayed revival in shrimp business, we maintain FY2014-2015
earnings forecast due to the following contributions: 1) Livestock business is
projected to grow remarkably thanks to larger chicken export to Japan and
Russia. In addition, pork export deal with Russia is currently under
negotiation. 2) Feed mill raw material cost is expected to stay low because
more feed product from the US has been sold in the market. 3) CPF is
expected to make a new M&A plan. The company has stronger financial
position. Its D/E ratio improved from 1.3x in 2Q14 to 1x in 3Q14 after
disposing some of its shareholding in CPP.
- Switch to use FY2015 fair value of B36
We reiterate BUY, switching to use FY2015 fair value (GGM, 2.1x P/BV ratio,
17.2% long-term ROE) of B36, implying 28% upside (including dividend
yield).
