Bangkok Ranch

Bangkok Ranch 

 

Investment thesis

BR’s long-term core earnings growth profile remains solid, with an 11% CAGR for FY15-19, despite diminished earnings expectations for the period that reflect lower sales at domestic and export operations. The more positive horizon is underpinned by consumption recovery in Thailand and the Netherlands and a gradual export volume recovery (due to broad economic gains) starting in FY16. Moreover, further scope for upside will come from M&A deals with fully-integrated duck producers in the CLMV subregion in 1H16. The stock is also cheaper than its peers (FY16 PER of 10.9x against the FY16 mean between CPF and GFPT of 13.2x). Our BUY rating stands.

Insights into 3Q15—weak earnings

Due to lower-than-estimated export sales volumes in 3Q15, we now assume a Bt138m net profit for 3Q15, down 11% YoY but up 1% QoQ. This new estimate is 21% lower than our previous Bt175m. If excluding FX, core earnings would be Bt139m, down 18% YoY but up 10% QoQ. The YoY core profit drop is led by declines in sales prices and volumes for Thai export and domestic operations. Moreover, a YoY stronger THB/EUR has resulted in lower THB revenue for the Netherlands operations (Bt39.2/EUR in 3Q15 against Bt42.5/EUR in 3Q14). 

The QoQ core earnings rise is due to the significant drop in interest expense. However, profit-before-interest expense will decline QoQ, caused by drops in domestic prices and export volume (low season), which should outweigh higher THB revenue from the Netherlands (weaker THB/EUR against Bt36.9/EUR in 2Q15) and the QoQ slightly higher feather sales price. GM is estimated at 18.5% in 3Q15, flattish QoQ. We assume QoQ flattish mean export prices and volumes to the EU, but QoQ slippages for both to Japan. We also assume that sales price and volume from Thailand’s downstream operations will likely drop QoQ, due to the domestic consumption slowdown.

FY15-16 core earnings downgrades

We forecast Bt147m core profit for 4Q15, up 6% QoQ (thanks to high seasonality) and 10% YoY (due to the low 4Q14 profit base related to the extra expense recognition). We cut our FY15 core profit 11% to Bt599m, due to lower export sales and GM than assumed. However, due to diminished expectations for Thai and global economic recovery in FY16, we believe that its earnings growth profile will not be as high as our previous forecasts. We thus cut our FY16 net profit forecast by 16% (to Bt664m) and YE16 target price by 17% (to Bt11.50).  

FY16 earnings recovery

We expect core earnings to recover in FY16, led by lower interest expense, recovery in export volumes to Japan and the EU, gains in sales prices in the Netherlands and Thailand, and more efficient cost control. We assume a flattish GM in FY16, as raw material prices will rise YoY. Moreover, the next scope for earnings upside is based on the planned M&A deals in CLMV, China, and Indonesia expected in 1H16.