GFPT SCB Securities

GFPT Plc

2Q16 net profit was Bt381mn (Bt0.3/sh), +91% YoY and +39% QoQ, 10% above our estimates and consensus mainly due to a better-than-expected gross margin. The YoY rise was backed by: 1) a higher gross margin (+330bps YoY) from wider broiler spreads and more high-margin products; 2) a jump in equity income (+1062% YoY) from both GFN and McKey. The rise QoQ is seasonal. Its 1H16 accounts for 47% of our full-year forecast (vs. 40% over the past three years), and we maintain estimates.

 

2Q16 highlights: 

 

 Revenue was Bt3.9bn, -3% YoY, as weaker feed sales (24% of sales) overwhelmed the improvement in farm and food sales (28% and 48% of sales). Revenue from the feed unit fell 18% YoY, mainly from weaker shrimp feed volume (-28% YoY) on higher competition from fully-integrated players and partly from weaker animal and aquatic feed volume (-16% and -9% YoY). Revenue from the farm unit grew 1% from more sales of grandparent and parent day-old chicks. Revenue from food units grew 3% YoY from more exports (+9% YoY) and indirect exports mainly to McKey (+23% YoY) that offset the slip in local sales volume (-8% YoY). 

 

 Gross margin was 13.8% (+330bps YoY) from 1) better prices amid lower corn and soybean meal costs; 2) more high-margin export and indirect export products. 

 

 Equity income surged 1063% YoY to Bt108mn, due to: 1) more contribution from GFN at Bt50mn (from –Bt13mn in 2Q15) on more high-margin product capacity since mid-2015 and off last year’s low base from broiler oversupply; 2) better contribution from McKey at Bt60mn (+186% YoY) from better product mix. Guides to better 2H16F. GFPT is more positive on 2H16F, expecting tighter industry supply from the earlier ban of imports of grandparent stocks from the US to Thailand and better demand for local and export markets (mainly from Japan). In Jul-Aug, GFPT observed a rise in price of day-old-chicks to Bt17 (+40% YoY and QoQ) and broiler price rose to Bt40-42/kg (+14% YoY and +12% QoQ). GFPT expects this to continue through 2H16, with broiler prices above Bt40/kg. Though avian influenza is now under control in the US, Thai authorities have not yet lifted the ban on the import of breeders from the US to Thailand, preferring to take time to monitor the situation. GFPT expects the import ban to be lifted no sooner than 4Q16. With stable or lower corn and soybean meal costs for the past few months, feed costs are not a concern in 2H16. Equity income from GFN and McKey will continue to strengthen with the completion of capacity expansion for GFN (+15-20%) in mid-2017 and McKey (+33%) in 4Q17.

 

Minimal impact from new Act. The government is drafting a new Animal Slaughter and Sales of Meats Control Act which GFPT expects to take effect in 2017 at the earliest. Based on its preliminary estimate of a slaughter tax of Bt0.2/chicken, we estimate additional costs of only Bt18mn/year (1% of GFPT’s earnings). 

 

Maintain BUY. We look for better earnings in 2H16F from seasonality, wider gross margin (better price minus low feed cost), and continued solid equity income. GFPT’s share has underperformed the SET by 4% over the past three months, not yet reflecting its solid earnings ahead. We maintain BUY with 12-month SOTP TP of Bt16.