August 30, 2007

 

The stars line up for a favorable Q3 for CPF

 

 

The news just gets better for Thai food processing giant Charoen Phokphand Group.

 

Strong volume and margin growth in its poultry and aquaculture overseas and exports businesses, a recovery in its domestic pork business may push CPF's third quarter earnings to as high as THB 1.5 billion (US$45 million), analysts said. 

 

Other reasons for the higher optimism among stock analysts include higher processed poultry exports to China and Japan and lesser pressure from raw material costs, especially that of corn and soy.  

 

The company is seeing results from cutting pork supply implemented at the beginning of 2007. Prices are on the rebound and well above breakeven prices. Swine supply is expected to be tight the rest of the year.

 

Blue-ear disease in China, which is having a toll on pork supplies there, could even prompt more pork exports to the country, analysts said. The turmoil in China's pork market could also signal an opportunity for Thailand to enter the Japanese pork market, which sources part of its pork supplies from China. 

 

However, this export increase is expected to dry up once China is able to contain the disease. Moreover, as pork exports is not a main driver of CPF's business, it would not be expected to add much to overall revenue.

 

Strong poultry and shrimp exports and overseas operations however, are expected in the third quarter given strong sustained demand for poultry and shrimp products, in addition to higher prices. This is especially true from markets like the EU, US and Japan.

 

Meanwhile, global commodity prices are expected to start losing steam after a heady upswing for much of the year. This would hold true for prices of commodities such as corn and soy, which has flatlined and is showing signs of weakening, analysts said. 

 

The baht has been strengthening against the US dollar for much of the past year, is also showing signs of weakening, much to the relief of exporters. The baht had been gaining strength for the past 18 months, rising from 40 baht to the dollar in January 2006 to almost 30 baht in July 2007. It is currently trading at 32.75 to the dollar. 

 

is depreciating from 30 baht against the dollar in July to 32 currently. In January 2006, it was nearly 40 baht to the dollar.