Thailand's CPF upgrades earning forecasts

Charoen Pokphand Foods (CPF) 2009 and 2010 earnings forecast are revised up by 3% and 26%, respectively. This improvement reflects the growth prospects for shrimp, overseas business and food business lines together with lower raw material costs.

CPF has stocked low-priced corn to last until mid-year, while the company has secured futures contracts for soymeal and freight until April and September, respectively.

Gross margin forecast for 2010 has been revised from 15.7% to 16.3%. The net profit is projected at THB10,315 million (THB1.46 per share) for 2009 or a surge of 230% year-on-year. According to CPF, the 2010 earnings should continue to remain healthy at THB8,708 million (THB1.24 per share) based on a conservative assumption with increasing raw material prices in 2H10.

The 4Q09 earnings should soften from 3Q09 due to the seasonal impact with lower exports and weaker shrimp business. Earnings however are projected to increase significantly year-on-year, from THB305 million in 4Q08 to THB2,236 million.

The gross margin is expected to jump from 12.8% to 17.1% on the back of lower raw material prices, while broiler and swine prices went up to THB40/kg and THB56/kg, respectively. The food business should continue to show healthy growth, while chicken in Turkey will recover from past losses to a profit.

The equity contributed from affiliates is also expected to turn profitable based on the improving performance of CPALL and Vietnamese operations.

The 1H10 is forecast to remain strong given lower raw material costs coupled with favourable meat prices. Broiler and swine prices have now reached THB45/kg and THB58/kg, respectively. Shrimp, food lines and overseas business should continue the growth momentum. However, we may see softer performance in 2H09 due to rising raw material prices.

CPF has maintained long-term targets to reduce the contribution of the farm business sector to one-third of total sales from almost 50% now. The portion of food business with higher margins and lower volatility will be increased from 20% at present to one-third of total sales.