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AGRI-FOOD

Revise up Fx rate to B31.5/USD... Weak THB to boost sector's FY2014-2015 net profit by 5% Neutral

AGRI-FOOD

- Revise up FY2014-2015 Fx rate to B31.5/USD to reflect fund outflow

Similar to electronic part sector, THB has been depreciating (and boosting

agriculture and food sector’s net profit) due to fund outflow on a projection that

QE cut is going to occur, as U.S. economy has been recovering. Meanwhile,

Asian economy (including Thailand) has been slowing, weakening THB to

B32.1/USD, more than expected at B30/USD. Thus, FY2014-2015 average Fx

rate is projected at B31.5/USD. We maintain FY2013 average Fx rate forecast,

as the year-to-date average Fx rate is at B30.5/USD, close to projection.

- THB depreciation to boost FY2014-2015 sector’s net profit by

5%

According to our study about the effect of THB depreciation on agriculture and

food sector’s net profit, every B1 weakened would increases net profit forecast

by 4%. Thus, the sector’s net profit forecast is projected to increase by 4.3% in

2014 and 4.9% in 2015. STA’s net profit is likely to increase most. As 85%

of STA’s income is in USD, whereas only 20% of its cost and lower than 10% of

its debt are in foreign currencies, its FY2014 net profit is projected to rise by

10.4%. The next most advantageous company is KSL. 68% of its income is

in foreign currencies (mainly USD), only 5% of cost is in foreign currencies, and

it has little foreign debt. However, because of futures contract strategy in sugar

deal, as well as fixed exchange rate in the contract, it is not likely to gain much

additional profit in FY2014. CPF and TUF are the third and the forth most

advantageous. 65% and 90% of their income is in foreign currencies (mostly

USD), 50% and 80% of their cost is in foreign currencies, and they have some

foreign debt. Benefits from weakened baht would be negated. Thus, CPF and TUF

would earn 3.6% and 2.3% additional profit, respectively. GFPT is the least

advantageous. 30% of its income is in foreign currencies (mainly USD) and

nearly 20% of its cost is in foreign currencies. Thus, GFPT would gain only 2.1%

additional net profit, the lowest plus in this sector. Overall, agriculture and food

sector's net profit is likely to rise by 34%yoy in 2014 and 20%yoy in 2015. Aside

from weak THB, the sector would also benefit from recovery in shrimp business,

as disease problem has subsided. Livestock business (pork and chicken) would

also benefit from a decrease in feed mill raw material cost.

- "NEUTRAL". Top picks are TUF and CPF

We maintain "NEUTRAL" for the agriculture and food sector. Top picks

are TUF(FV@B76) and CPF(FV@B33.69). Disease problem in shrimp

business has subsided, benefiting TUF (shrimp business making up 20%

of total revenue) and CPF (shrimp business making up 13% of total

revenue). We also recommend buying STA(FV@B21.62) as it benefits

most from weak THB. STA’s share price is still laggard in the sector,

with FY2013 PER at 8.8x and PBV at 0.8x.




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