GFPT

GFPT Plc 

 

Investment thesis

Given the eased US bird-flu situation during July-August and the anticipation that the Thai Livestock Association will allow resumption of breeder imports from the US in the next 3-4 months, we are now more skeptical that the domestic chicken price will bounce strongly in 2016 on a breeder-supply shortage. The 2H15 earnings outlook will be weaker YoY, led by a YoY drop in export volume, the highly volatile currencies of importing countries and the sustained weak global and EU economy and consumption. Our HOLD rating stands based on the weak FY15 earnings with no earnings improvement visibility until FY16.

YoY lower GFPT’s export volume in 3Q15 

We estimate that GFPT’s 3Q15 export volume will be 6,000 tonnes, down 14% YoY (due to sustained weak global economy and weaker currencies of importing countries) but up 13% QoQ (led by the third-quarter high season for exports). We expect its mean export price to sustain at US$4,200/tonne, flattish YoY and QoQ. We believe that its ability to raise sales prices with clients looks difficult, given the weakening global economy, the sustained domestic chicken prices and Saha Farms’ discounted sales prices to the EU by about US$200-300/tonne. Because of weak domestic byproduct prices in 3Q15, both GFN and MacKey will gear themselves toward exports, volumes of which we estimate will be 10,500 tonnes (GFN, up 17% YoY and 5% QoQ) and 8,000 tonnes (MacKey, up 33% YoY and 5% QoQ). 

Eased US bird-flu situation during July-August

Management anticipates a strong bounce in the domestic chicken price and in byproduct prices in Nov (after the October Vegetarian festival) and the domestic chicken price to reach above Bt55/kg in 2016 (led by the shortage of breeder and chicken from widespread bird flu in the US, the UK and Germany in 2015). However, given the eased bird-flu situation in the US during July-August, we expect the Thai Livestock Association to allow the resumption of breeder imports from the US in the next 3-4 months. Hence, if the domestic chicken price were to bounce in 4Q15, we believe that it would be a short-term phenomenon caused by the short-term breeder shortage. We are skeptical that the domestic chicken price can rise in 4Q15 through to FY16, in light of ongoing excess chicken supply (led by Saha Farms and Thai Food Group) and the alternative of breeder imports from New Zealand. 

FY15-16 earnings downgrade by 10-11% 

Because of a 7% YoY drop for 1H15 sales, we have then revised down our FY15 sales forecast 6% (to Bt17.5bn) to reflect the diminished byproduct sales price and export volume assumption. Hence, we have cut our net profit forecasts for FY15 by 11% (to Bt933m) and for FY16 by 10% (to Bt1.02bn). Our target price declines 12% (to Bt8.80).