April 24, 2012

Thailand's CPF breaks record earnings at US$200 million in Q1

Following gains from the CPV fair value adjustment, CPF is forecast to deliver new record earnings of THB6.2 billion (US$200 million) for the first quarter of 2012.

The norm profit should slip on quarter and on year due to less than favourable meat prices. However, CPF should see solid performance in 2Q12 based on the full-quarter CPP contribution, while domestic meat prices have bottomed, with sharp recovery in April. A Buy call is maintained with a fair value of THB45 (US$1.45).

The first quarter 2012 net profit is expected to surge 158% on quarter and 78% on year to THB6.206 billion (US$200 million) due to the CPP consolidation since March and with extra gains. The fair value adjustment for CPV is projected to see a gain of around THB4.3 billion (US$138.6 million), while the insurance business divestment is estimated at a THB200 million (US$6.4 million) gain. The norm profit is forecast at THB1.706 billion (US$55 million), down 1% on quarter and 38% on year. This decline is attributed to poor domestic meat prices, as the average broiler price slipped 13% on quarter and 27% on year to THB35 (US$1.13) per kilogramme, while swine prices dropped 12% on quarter and 10% on year to THB53 (US$1.7) per kilogramme. Raw material prices have increased along with rising corn and soy meal.

Norm profit should be fuelled by the high demand season and the full-quarter of CPP contributions. Meat prices bottomed out in March and broiler prices rebounded from THB28 (US$0.9) per kilogramme to THB35 (US$1.13) per kilogramme so far, with swine prices improving from THB48 (US$1.55) per kilogramme to THB58 (US$1.87) per kilogramme. Thai exporters have stocked chicken for exports in July after the EU ban is lifted. Earnings will be revised up to reflect the CPP consolidation after the first quarter 2012 result release. Based on our initial forecast, the profit will rise 39% to THB22 billion (US$709 million) or THB3.00 (US$0.10) per share this year.

Fair value is based on a PER of 15x at THB45 (US$1.45). CPF will be able to achieve the sales target of THB600 billion (US$19 billion) over five years with the key catalysts of overseas expansion and more food sales. The feed business in China, under CPP, has plenty of room to grow, from the current production utilisation of 55%, in a growing market from traditional to commercial production. Based on the leading position and growing market share in Vietnam, CPV also has a strong growth potential.