May 16, 2007

Thailand's GFPT PCL posts Q1 loss of US$1.2 million

Thai poultry breeder and animal nutrition specialist GFPT PCL reported a net loss of US$1.2 million or THB40 million as gross margins fell from 11.5 percent in the first four months of 2006 to 5.75 percent in Q1 2007. The drop was due to an increasing corn price of 43 percent year-on-year from an average of THB5.41 per kilogramme last year to an average of THB7.74 per kg in 2007. Lower average domestic broiler price of 5 percent year-on-year to THB28/kg was also attributed to the profit loss.

The company still expects poor earnings in the second quarter due to high corn process and difficulties in raising feed mill prices even without the permission from the Department of Internal Trade. However, the firm also sees good earnings from the second half of 2007 due to better local broiler price following lower supply for broilers as well as additional proceeds from its new cooked products. Its cooked products will start operations in August with a production capacity of 15,000 tonnes per year. This year's normalised profit projection is THB142 million.

Poor earnings prospects in the short term will likely put further pressure on GFPT shares. Since the current share price is trading at a 5 percent premium to fair value estimate, "FULLY VALUED" recommendation is maintained with fair value estimate of THB10.50 per share based on a 2007 PER of 9x.

GFPT is confident of its long-term fundamental outlook still despite its recent problems with its plans of backward and forward integration to reduce risks and preserve profitability. The company plans to expand the capacity of its feed mill plant of 512,000 tonnes/year, new cooked product production line with capacity of 15,000 tonnes/year and chicken farm with a capacity of 1,160,000 chickens/year. These expansions should create value to the company in the long run.

Note: US$1 = 33.125 Thai Baht