January 18, 2007

 

Bird flu and increased feed prices unlikely to dent profits for Thailand's CPF

 

 

Thailand's recent bird flu outbreak should have a minimal impact on Thailand's largest chicken producer and processor Charoen Pokphand Food (CPF) but it would still have a short-term negative impact on its share price, industry commentators said.

 

The H5N1 bird flu virus, which made its fifth appearance in Thailand in Phitsanulok where more than 2,000 ducks were recently culled, is becoming more of normality for the industry.

 

The sentiments were echoed by various Thai poultry exporters.

 

Anan Sirimongkolkasem, president of the Thai Broiler Processing Exporters Association, said he expected the latest outbreak could be dealt with effectively.

 

He also acknowledged that live chicken prices had dropped to between 22 and 26 baht per kilogramme, from 30 to 32 baht last month. However, prices had fallen not due to bird flu, but oversupply, as 17 million chicks were being raised each week, compared with 14 million a week last month.

 

Consumers have also tightened their belts and are paying less for meat, he added.

 

Bird flu is not expected to have a direct impact on CPF as the company's poultry, being raised in closed farms, is well protected from the disease. However, if the virus were to spread, it would reduce demand for domestic chicken, thus making a bigger impact on the company. While even that should be short termed, it meant a narrowing of margins and net profits for the first quarter of the year.

 

Corn prices, which have risen 33 percent in 2006, is set to continue rising in the near future, making feed prices more expensive. Still, the blow would be cushioned by the fact that these increased costs would likely be passed on the consumers.

 

The gradual depreciation of the baht and relatively stable chicken prices should help CPF maintain its margin at 14 percent in the long run, experts said.

 

The Thai baht has weakened in recent weeks and is expected to weaken further in the near term. This would help increase CPF's chicken, shrimp and feed mill exports

 

Meanwhile, stable chicken prices should also help sustain earnings. At the same time, oil prices have declined, which perhaps would lessen demand for ethanol and hence relieve price pressures for corn and in turn, feed.

 

Experts said it is too early yet to judge the impact bird flu and feed price increases would have on the company's profits for 2007 as the company does have solid fundamentals.

 

According to Teerasak Urunanon, an executive vice-president of CPF, the company's domestic sales have remained steady. Consumers also have greater understanding about the bird flu and the importance of proper cooking, in contrast to past outbreaks, when domestic sales plunged by 10 percent to 15 percent.

 

CPF remains upbeat it can ship 100,000 tonnes of chicken this year, up 30 percent over the year before. The EU is the main market with about 60-70 percent of the total volume, while Japan consumes 30 percent.