STOCK FOCUS
Charoen Pokphand Food
KGI Securities (Thailand) has maintained its "outperform" rating on Charoen Pokphand Food (CPF), with a revised target price of Bt5.50 per share.
Although CPF might seem metaphorically like the ugly duckling now - disappointing earnings, susceptible to the bird-flu epidemic, subject to tariff and non-tariff barriers for exports and rising raw material prices - the brokerage says it is the company's inner beauty that should be appreciated and time will prove that it will one day turn into a beautiful swan. For long-term investors that appreciate the company's inner beauty - solid fundamentals, a relatively decent estimated 2007 dividend yield of 6 per cent, long-term overseas expansion plans, more emphasis on higher value-added products and research and development - the recent fall in the share price of about 7 per cent in the past two weeks should be considered a buying opportunity. The broker expects CPF to report a fourth-quarter net profit of Bt370 million, declining 46 per cent quarter on quarter and 42 per cent year on year. This is based on revenues of Bt33 billion, roughly flat on the quarter but up 8.5 per cent on the year. The declining net profit estimate is based on a relatively stronger baht, which has made it hard to manage margins. Moreover, the livestock feed segment should be pressured by rising corn prices and a slowdown in domestic demand due to political uncertainty. As the broker expects CPF to post weak fourth-quarter earnings, it has revised downward its earnings forecast for 2006 by 18 per cent and for 2007 by 15 per cent. It has also reduced its net margin estimate for 2006 by one per cent and for 2007 by 0.7 per cent.
|
