Charoen Pokphand Food

Charoen Pokphand Food Plc (CPF)  

 

- 2Q15 net profit to drop, but profit from core businesses to rebound  

We estimate CPF's 2Q15 earnings at B2.6bn, falling 11.0%qoq and 25.8%yoy. Excluding B1.5bn extraordinary profit from sales of investment, 2Q15 normalized profit is expected at B1.1bn, leaping 430%qoq but plunging 48.3%yoy. For the domestic businesses (41% of total income), export volume is projected to grow due to high season. Domestic pork selling price would rise by 14.0%qoq to B66.2/kg in 2Q15 since hot weather slows down pig growth and supply, while chicken price has remained at B38.0/kg. The shrimp business has recovered gradually, facing lower loss than 2014. The overseas business (59% of total income) has grown from 1Q15. The livestock businesses in Vietnam and India have rebounded thanks to rising chicken selling price, while the chicken business in Turkey would face loss again after making a breakeven in 1Q15 since export to the Middle East will decline as a result of the political problem. Overall, CPF's 1H15 normalized profit is projected at B1.3bn, plunging 67.0%yoy and making up only 17% of the full-year normalized profit forecast. 

- Revising forecast, considering sluggish economy   

After 2Q15 earnings report, we will revise down CPF's earnings forecast by 40% in 2015-2016 to reflect the sluggish economy and worldwide fluctuating currencies which is a challenge for CPF as an exporter. Although USD/THB rate has weakened on a year-to-date basis, THB/EUR and THB/JPY rates have depreciated as well, which means food from Thailand would be more expensive in EUR and JPY. Under the new forecast, FY2015 PBV projection is lowered from 1.70x (near the ten-year average) to 1.61x, so the fair value is revised down from B26 to B28.    New fair value still shows upside  

Negative sentiment from possibly weaker earnings in 2Q15 has been included in the forecast already, and the core businesses are projected to rebound further. The new fair value still implies high upside from the current price. We reiterate BUY.