July 7, 2004

 

 

Thai Poultry Industry Suffers From Bird Flu Impact

 

The suspected outbreak of bird flu in Ayutthaya will likely have a significant impact on the Thai poultry industry, with the shares of two major chicken exporters, Charoen Pokphand Foods Plc (CPF) and GFPT Plc, plummeting yesterday.

 

Thailand yesterday was reported to have yet another case of the deadly bird flu virus, which wrecked havoc in the country's export industry earlier this year.

 

Shares of CPF yesterday closed 0.12 baht lower to 3.94 baht and GFPT's closed 0.6 baht lower to 14.1 baht.

 

Deputy Agriculture Minister Newin Chidchob said the Ministry suspects a fresh outbreak in the central province of Ayutthaya where thousands of chickens have died.

 

The suspicion came after the death of chickens in a farm where the breeder did not destroy them, so he could claim compensation from the government.

 

Newin said the farmer should have killed all the chickens to prevent the outbreak. Some of the birds were left alive as the farmer said he was waiting for test results from the laboratory.

 

The fear of the outbreak sent the shares of some of the listed poultry farming companies down amid fears that the industry may be once again hit by the bird flu. The virus had caused the loss of billions of baht during the peak of the crisis and shaved 0.50 percent from the first quarter gross domestic product (GDP).

 

The National Economic and Social Development Board (NESDB) said Thailand's first quarter GDP would have been 7 percent against the registered 6.5 percent if it had not been affected by the bird flu.

 

Nutchjarin Kasemsukworarat, an analyst at SCB Securities told Business Day that the suspected outbreak has had a negative impact on the short-term sentiment in the market as Thailand could not announce the end of the bird flu outbreak, ahead of being certified by the World Health Organisation (WHO).

 

Thailand's main export destination for poultry products, such as Japan and the European Union, banned the import of poultry products during the previous outbreak of bird flu.

 

To ward off the effects of the bird flu crisis, the country's two companies turned to producing more processed chicken for exports.

 

Processed chicken must meet the requirements of consumer countries where high hygienic standards have to be maintained for imported products. The EU has already postponed its order for Thai chicken until December 2004. The order for supply of frozen chicken from Thailand is supposed to resume in August.

 

The fresh trace of bird flu in Vietnam last month had minimal effect on investments in the poultry industry. The impact on the Thai market was almost instantaneous following the suspected incident in Ayutthaya.

 

Nuchjarin, however, recommends a "buy" on shares of CPF and GFPT with a target price of 4.2 baht and 18 baht.

 

An analyst at KGI Securities Plc said that the outbreak will cause low revenue for CPF. About 50 percent of CPF's chicken is produced for the domestic market, while the other half is processed for export.

 

However, it will not affect the company's exports as CPF does not export frozen chicken but focuses on processed chicken.

 

KGI recommends a "sell" on CPF shares to take profit. It has set a target price of 4.1 baht this year.

 

National Securities said the bird flu outbreak will affect the shares of CPF in the short-term. However, it believes that CPF will cope with the problem as the company is turning to produce 100 percent of processed chicken for export in a few years from the current 80 percent.