October 15, 2010

CPF posts strong Q3 on demand growths

CPF will post 3Q10 earnings growth of 13% year-on-year to THB4,117 million due to healthy growth of shrimp and overseas business, while meat should remain profitable despite lower broiler prices.

This profit should be softer in 4Q10 based on the low season for exports and shrimp. In 2011, meat prices will tend to decline, while raw material prices should increase. Shrimp and overseas operations will remain growth drivers.

CPF 3Q10 normalised profit is forecast to rise 13% year-on-year to THB4,117 million, thanks to ongoing growth of operations in Turkey, India and Malaysia. Shrimp and shrimp feed will benefit from higher demand and rising prices on a lower world supply. Domestic meat should still be profitable even with a 7% year-on-year drop in broiler prices. Average prices for swine and eggs have increased 5% and 7% year-on-year, respectively.

Meanwhile, material prices (corn and soymeal) have risen at a lower pace, as CPF has stocked raw materials at low prices. Despite the strong baht, we expect a minimal impact on the export business. CPF is able to adjust export prices in the EU and the US markets, while there is a natural hedge by importing soymeal and wheat as raw materials. Also, equity gains from affiliates CPALL and the Vietnam firm should continue to grow.

CPF is expected to post lower normalised earnings in 4Q10, compared to other quarters this year. This is attributed to the low season for exports and shrimp business together with softer meat prices.

The company projects its 2010 profit at THB13,029 million (THB1.85/share), up 36%. Earnings should grow further by 6% to THB13,865 million (THB1.97/share) in 2011 with sales growth at 10% year-on-year to THB202,704 million.

The gross margin however is projected to drop from 18.6% to 18.2% as average meat prices are likely to decline. CPF has stocked corn for the next 4-5 months and has locked up soymeal until mid 2011. However, the key growth factor is shrimp and overseas business. Shrimp will be fuelled from expanding markets and higher efficiency on production with low costs. Overseas business will be boosted by a capacity expansion in India, better profitability in Russian operations and more value-added product sales in Turkey.