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Published on April 23, 2008

Siriporn Chanjindamanee

The Nation

Charoen Pokphand Foods' first-quarter earnings are expected to turn around from a net loss of about Bt1.14 billion in the same period last year to a net profit of Bt662 million to Bt704 million, thanks to the higher margin from a recovery in local prices of chicken, eggs and pork, analysts said.

Six of the 17 brokers in the Securities Analysts Association's consensus recommended a "buy" for CPF, one gave a "trading buy", another a "buy on weakness", while three recommended "hold".

One broker each recommended an "accumulate" and "neutral" rating.

The rest did not make any recommendation.

The target price was in the range of Bt4.17 to Bt6.97.

Kim Eng Securities (Thailand) predicted CPF would show a net

profit of Bt683 million in the first quarter based on the assumption its gross margin would be widened from 7.9 per cent in the corresponding period last year to 13.9 per cent.

The stronger gross margin was attributable to a 50-per-cent and 35-per-cent year-on-year increase in the average farm price of pork and chicken to Bt55 and Bt38 per kilogram, respectively.

"Pork and chicken prices at farms now stand at Bt59 and Bt40 per kilogram, respectively, and the prices are likely to stay at a high level due to the rising prices for raw materials and animal feed.

Its egg business also turned a profit as prices rose to Bt2.40 per egg, while domestic shrimp prices are expected to rise also.

"CPF has shifted to focus more on processing shrimp products that offer higher margins than fresh shrimp," the broker said.

Its livestock and aquaculture business abroad, including India, Malaysia, China and Vietnam, is expected to grow 10-15 per cent this year over last year, the broker said.

"Its farming business in Russia will start operating after its plant is built in the third and the fourth quarters of this year.

CPF's chicken and shrimp exports will rise 10-15 per cent this year due to higher sales volume, with the selling price offsetting the stronger baht.

"Europe is CPF's biggest chicken importer, taking in more than 50 per cent of its exports, while Japan is its largest shrimp buyer with 35 per cent of its exports," the broker said.

CPF is the top local agro-industrial and food conglomerate. Its core business is divided into two lines: livestock and aquaculture.

The livestock operations comprise broiler chicken, layer chicken, duck and swine. For aquaculture, the two main marine animals are shrimp and fish.

The products in each of these two business lines can be classified into three main categories: animal feed, breeder animals and meat (including live animals); cooked meat; and ready-to-eat food products.

Last year CPF reported consolidated sales of Bt134.81 billion, 66 per cent of which was contributed by local sales, 18 per cent by exports from Thailand, and the remainder from overseas operations. The company reported a consolidated net profit of about Bt1.28 billion in 2007.

Kim Eng Securities said CPF's normalised profit this year would surge to Bt3.34 billion, up 237 per cent year on year, despite higher costs for feed meal and the stronger baht.

The broker recommended "accumulate" on CPF, with a fair value of Bt5.35.

Phillip Securities (Thailand) said CPF should record a net profit of Bt662 million.

The rising cost of raw materials in feed-meal, including corn, fish mill, soybean and wheat flour has threatened its feed-meal business as the company cannot fully pass on the higher costs, the broker said.

A CPF executive has estimated that raw-material prices will rise 15 per cent year on year, which would pressure the Commerce Ministry to raise feed meal prices, the broker said.

Although pork prices have risen significantly, supply will still be tight, the broker said, adding that prices have yet to stabilise. The broker recommended a "buy" on the stock, posting its fair value at Bt5.60.

 Asia Plus Securities, which has set the highest target price for CPF stock, said the firm should record a net profit of Bt678 million in the first three months of the year, with its gross margin rising from 7.92 per cent in the same period last year and 12.3 per cent in the previous quarter to 14.2 per cent.

The broker estimated that earnings would continue to improve in the second quarter on the back of relatively high product prices and rising sales due to the export season.

Ayudhya Securities is the most optimistic of the four brokers. It expects CPF to show a net profit of Bt704 million in the first quarter.

CPF's quarterly gross margin is expected to jump strongly from 8 per cent in the same period last year to 13.5 per cent, the broker said.