May 5, 2009

Charoen Pokphand Foods (CPF) is expected to post a net profit of THB513 million (US$14.61 million) in its first quarter of 2009, up 14 percent year-on-year.

 

Taking into account foreign exchange gains in its first quarter last year; normalised earnings would surge 97 percent year-on-year.

 

This is also attributed to gross margins improving from 12.1 percent last year in the first quarter to 12.7 percent as raw material prices such as corn and soy, decreased faster than animal feed prices.

 

Despite lower domestic meat demand in a weak economy, CPF's swine, broiler and egg business remained profitable due to lower raw material prices.

 

Improved results should also come from the recovering chicken business in Turkey following lower losses after an output cut.

 

Average corn and soy prices in the first quarter of 2009 contracted by around 12 percent year-on-year to THB7.6 per kilogramme and THB15.3 per kilogramme, respectively.

 

Meanwhile, average broiler prices declined by only 8 percent year-on-year to THB35 per kilogramme, while swine prices soared 4 percent year-on-year to THB57 per kilogramme due to lower supply.

 

CPF's second quarter in 2009 performance should further improve due to the high export season, lower raw material costs and the improving business in Turkey, which should break even in April.

 

Domestic meat prices remain favourable, especially swine prices, now at THB65 per kilogramme despite the A/H1N1 influenza outbreak in Mexico and US.

 

Broiler prices have picked up sharply to THB36 per kilogramme, while swine demand is expected to decrease in the short term and then rebound.

 

Although the economic slowdown has lowered consumption, CPF still stands to benefit from declining raw material prices.

 

Due to lower supply, meat prices should remain favourable. Value-added chicken exports should enhance margin, while a windfall in shrimp exports is expected following an outbreak of shrimp disease in Vietnam, one of the five largest shrimp producers in the world.

 

The chicken business in Turkey is forecast to turn profitable after huge losses last year, and higher equity gains are expected from affiliates based on the strong growth of CP All Public Company Limited (CPALL).

 

CPF's normalised earnings are projected to rise 6 percent to THB3,215 million (THB0.43 per share) this year.

 

A/H1N1 influenza concerns offer an opportunity to accumulate the stock at cheaper prices, based on an estimated fair value of THB4.70 per share.

                                

US$1 = THB35.091 (May 5)