GFPT

GFPT Plc

 

We expect GFPT to report solid 2Q16F net profit of Bt342mn, +71% YoY and +24% QoQ, thanks to a wider gross margin (lower feed costs and better product mix) and higher equity income. Earnings will improve further in 3Q16F from seasonality, better margin and more equity income. GFPT has underperformed the SET by 17% over the past three months, trading at 10x 16PE vs 2016 EPS growth of 16%, suggesting the market is ignoring the better days ahead. BUY with SOTP TP of Bt16.

 

Expect 2Q16F net profit of Bt342mn, +71% YoY and +24% QoQ. The YoY jump will be backed by: 1) wider gross margin from lower feed costs and better product mix (more high-margin exports and indirect export sales volume); 2) better equity income from both GFN (more high-margin product capacity and off last year’s low base during the broiler oversupply) and McKey (better product mix). The QoQ rise is seasonal. 1H16F looks to account for 45% of our full-year forecast (vs. 39% over the past three years). Results will be released on August 9. 

 

2Q16F expectations. 

 

- Slightly weaker sales: Sales are forecast to slide 2% YoY, pulled down by a weaker feed unit that outstripped the improved farm and food units. At its feed unit (27% of sales), sales volume continued to drop YoY as it met greater competition from fully-integrated players, especially in the shrimp feed business (6% of sales) plus, selling prices followed raw material costs down. At its farm unit (27% of sales), sales volume (mainly to GFN) is expected to rise by 5% YoY. At its food unit (46% of sales), direct and indirect export sales volume (mainly to McKey) is expected to rise by ~10% YoY with stable prices, with YoY flat domestic (byproduct) sales volume and prices. 

 

- Wider gross margin. Gross margin is expected to be 13% in 2Q16F, +250bps YoY, backed by 1) lower feed costs (corn and soybean meal costs); 2) better product mix (more high-margin exports and indirect export volume). 

 

- Outstanding equity income: Equity income is set to soar to Bt113mn in 2Q16F (from Bt9mn in 2Q15), to where it accounts for 33% of GFPT’s net profit (vs. 5% in 2Q15 and 39% in 1Q16). Behind this is better equity income from GFN of Bt50mn (turnaround from –Bt13mn in 2Q15) and McKey of Bt63mn (+194% YoY from Bt21mn in 2Q15). GFN will record higher sales and better margin brought by the startup of its new high-margin cooked production capacity (+30%) in mid-2015, as well as off last year’s low base during the domestic broiler oversupply and low export volume with a strong THB. For Mckey, earnings improvement will come from better sales and a higher margin from a more favorable product mix.  

 

More improvement in 3Q16F. We expect 3Q16F to improve QoQ on seasonality and YoY from: 1) better equity income (mainly from GFN, off the relief of the broiler glut plus better utilization from its capacity expansion in mid-2015); 2) a better margin at GFPT itself from wider broiler spread (stable price amid lower feed costs).