Charoen Pokphand Foods
2Q16: Better margin led to core earnings beat BUY
Charoen Pokphand Foods Plc (CPF)
2Q16 net profit was Bt4.0bn (Bt0.5/sh), +35% YoY and +7% QoQ, missing our estimate of Bt4.5bn (and consensus of Bt3.2bn) from a Bt1.2bn one-time tax expense brought by the revision of taxes for 2010-15 using the Revenue Department’s calculations rather than the BoI’s. Extra loss in 2Q16 was Bt665mn: Bt1.2bn taxes plus Bt75mn FX loss, minus Bt200mn gain on the change of fair value of biological assets and Bt455mn gain from the sale of investment.
Excluding extra items shows a 2Q16 core profit of Bt4.7bn, +954% YoY and 104% QoQ, far above our estimate of Bt2.8bn and consensus of Bt3.2bn thanks to a better gross margin than anticipated at both livestock and aquaculture units. Backing the improved earnings were better sales (+13% YoY), wider gross margin (+390bps YoY), lower SG&A/sales (-150bps YoY), and more equity income (+35% YoY) mainly from CPALL. 1H16 earnings account for 70% of our 2016 forecast (vs. 48% over the past three years). CPF also announced a 1H16 interim DPS of Bt0.5/share, XD on Aug 23.
2Q16 highlights. Based on the note to the financial statement, of total sales, 83% came from livestock and 17% from aquaculture units. Of profit, 90% was from livestock and 10% from aquaculture units. In 2Q16, total sales were Bt117bn (+13% YoY), made up of Bt97bn in livestock sales (+11% YoY) and Bt20bn in aquaculture sales (+19% YoY). Total allocated segment profit jumped to Bt10.2bn (+205% YoY), consisting of better livestock profit of Bt9.2bn (+173% YoY) and aquaculture profit of Bt1.0bn (from -Bt30mn in 2Q15). Excluding unallocated segment profit, operational profit grew to Bt6.2bn (+50% YoY).
Maintain BUY with SOTP PT of Bt38. The booking of the one-time tax expense in 2Q16 removes the price overhang. The continued solid shrimp and swine units, better broiler unit and increase in CPALL’s share price (CPF holds 35%) will be price catalysts. More details will be provided after the meeting on Aug 16.
