March 31, 2008

High swine and broiler prices gives Thailand's CPF confidence in 2008 earnings

Stock analysts remain positive on food producer Charoen Pokphand Foods (CPF)  even amidst rising feed prices which are eating into profits.

The company earnings are forecast to improve significantly based on rising domestic consumption along with an improving economy and better consumer confidence.

Even with surging raw material costs and a strengthening baht, CPF is still expected to show a strong turnaround with earnings growth of 237 percent to THB 3,337 million this year. Rising swine and broiler prices will result in a substantial earnings recovery in 1Q08, after losses in 1Q07.

Relatively high swine and broiler prices will enhance company profitability while overseas sales still have healthy growth potential especially in Vietnam, analysts said.

CPF will not be hurt from pork prices being cut back to THB 98/kg.

Thanks to lower supply and surging feed costs, swine prices have remained favourable at THB 58-59/kg rising from THB 35-36/kg in 1Q07.

Meanwhile, broiler and egg prices have also gone up from THB 28/kg to THB 40/kg and from THB 1.8/egg to THB 2.5/egg, respectively. Based on a cost-plus scenario, the feed business remains profitable even with a sharp increase of raw material costs.

The increase in anti-dumping rates from the US Department of Commerce on Thai shrimps would also unlikely affect the company.

The new preliminary AD rate increases slightly to 6.09 percent from the previous rate of 5.95 percent.

CPF shrimp exports to the US represent only 2-3 percent of total sales.