GFPT

GFPT Plc 

Investment thesis

Following the conference call, we have lowered our expectations for 4Q14-FY15 earnings due to lower-than-assumed export sales volume. We also cut our net profit forecasts for FY14 5% (to Bt1.79bn) and for FY15 18% (to Bt1.94bn) to factor in the lower export sales volume. As such, we have cut our YE15 target price 21% (to Bt19). Our BUY rating stands, premised on potentially greater volume of chicken exports to South Korea starting 3Q15 and a cheap valuation—FY15 PER of 9.8x.

Diminished export sale volume but solid export price in 4Q14 

We have now lowered our expectations for GFPT’s 4Q14 export volume based on the slowing export demand in 4Q14 associated with the global economic crisis and its impact on global meat consumption (though food is the most resilient commodity in an economic downturn) and the exceptionally high export volume base set in 3Q14. 

We now assume that GFPT’s mean export volume will be only 6.3k tonnes in 4Q14 (down 2% YoY and 10% QoQ), lower than our previous expectations of 7k tonnes in 4Q14 (up 9% YoY and flattish QoQ). We also assume lower export volumes for McKey and GFN, its 49%-owned affiliates, in 4Q14. Despite the lower 4Q14 export sales volume assumptions, we expect the mean export sales price to remain intact at US$4,450/tonne in 4Q14, down 2% YoY (led by greater raw chicken to Japan in the sales mix), but up 6% QoQ (due to the higher processed chicken price). 

Insights into 4Q14—an earnings tumble

We estimate net profit for 4Q14 to be Bt375m, down 17% YoY and 26% QoQ. The new calculation is much lower than our previous Bt460m, thanks to the lower export sales volume. The YoY drop is led by the export volume decline and the lower domestic byproduct margin.  

The QoQ fall is thanks to lower export volume, a squeezed domestic byproduct margin (related to the lower domestic chicken price), lower equity income from GFN and McKey (due to lower exports and domestic byproduct sales) and a seasonal jump in SG&A. We assume that GFN’s 4Q14 net profit will be Bt97m (up 60% YoY but down 40% QoQ) and McKey’s 4Q14 net profit, Bt50m (up 20% but down 19% QoQ). Sales will have risen 5% YoY but dropped 4% QoQ. We assume GM of 13.2% in 4Q14 (16.9% in 4Q13 and 13.4% in 3Q14). 

Anticipate weaker export sales volume and price in 1Q15 

We expect lower export sales volume and a reduced export price in 1Q15, led by the seasonally low export volume to Japan and the continuing impact of the global chicken consumption slowdown. For 1Q15, we assume an export sales volume of 6k tonnes in 1Q15 (down 2% YoY and 5% QoQ) and a mean export sales price of US$4,100/tonne (down 7% YoY and 8% QoQ). We preliminarily assume a Bt350m net profit for 1Q15, down 18% YoY and 7% QoQ.