April 29, 2004

 

 

Lower First Quarter Losses Forecasted for CP Foods
 

Asia's largest food producer, Charoen Pokphand Foods Plc (CPF), said yesterday that it expected to post narrower losses in the first quarter of 2004 from a year earlier. This forecast is made despite the bird flu outbreak and higher prices of raw material.

 

SCB Securities analyst Nuchjarin Kaesmsukworarat said first quarter losses would still be less than the 826 million baht posted a year earlier.

 

Company results are also likely to improve in the second quarter of the year once domestic consumption of chicken returns to previous levels. In fact, a recent increase in consumption has already boosted poultry prices.

 

However, due to a global supply shortage, CPF will still have to contend with the rising costs of raw materials, such as soybeans and corn.

 

Since local supplies have virtually dried up, Thailand may be forced to buy both from South America. Such a move, however, will require higher transportation costs.

 

Meanwhile, the Ministry of Agriculture said recently that the price of key raw materials for producing chicken feed have risen to as high as 5.7-6.7 baht per kilo.

 

Every one baht increase in corn prices could depress CPF's annual core profit by 700 million baht if it was unable to pass on the additional costs to buyers. Nuchjarin forecasted CPF posting profits of 2.9 billion baht and earnings per share (EPS) of 0.38 baht.

 

She also projected a first quarter loss of 800 million baht, slightly lower year-on-year, and added that its share price should reach 4.2 baht this year. Nuchjarin recommended a "buy" on CPF shares.

 

Meanwhile, Syrus Securities analyst Jitra Amornthum predicted that CPF would face a loss of 780.4 million baht in the first quarter of the year. The loss was attributed to the bird flu outbreak and the US government's ban on shrimp exports

 

Jitra set a target price of 3.8 baht per share at the end of 2004. She expects CPF's performance to start improving by the third quarter when consumption and exports of chicken rise.

 

Consumption levels in Thailand have stayed at 50-60 percent of normal levels. Exports are still in the doldrums, since Japan and the EU have yet to lift a ban on Thai poultry.

 

But Japan, which continues to import cooked chicken products from Thailand, has said it will review the ban in May. For its part, the EU has previously said it will review the ban in August.

 

CPF has been focusing on increasing exports of cooked chicken products, as they are priced higher than fresh chicken meat.

 

Jitra recommends a "hold" on CPF's shares even as the company's operations are beginning to show signs of improvement.

 

Ayudhya Securities Plc analyst Renu Bandasak has recommended a share price of 4.5 baht for CPF by the end of 2005 as she expects the company to face a loss of 805 million baht in the first quarter.

 

Earnings are expected to fall 30 percent year-on-year. But the gross margin will increase continuously by 7 percent as the price of exported cooked chicken will be higher as compared with the same quarter last year.

 

She said it is unlikely that consumption of chicken will return to previous levels as consumers are still worried about the return of bird flu. She recommends a "hold" on CPF shares.

 

According to Kim Eng Securities Plc analyst Suthatip Peerasup, CPF will start seeing profits in the second quarter when worries over bird flu disappear.

 

However, the volume of poultry exports is unlikely to increase soon, she added.