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Livestock good, tuna okay, shrimp getting better


Livestock good, tuna okay, shrimp getting better

- Livestock industry brightening, but corn price could rise from Ukraine issue

- Tuna price down, but branded products help TUF improve margins

- Top pick for March: TUF

Broiler and swine update. After Chinese New Year, domestic broiler price remained stable from January at Bt44/kg in February, better than consensus forecast at Bt42/kg. Broiler outlook is outstanding, both at home and abroad, particularly for Japan, where export volume of fresh chicken is expected to reach ~100,000 tons in 2014 at a very good price of US$3,800 per ton. This is far above our estimate of US$2,900 because the chicken will be exported as a teriyaki product (cooked but rare). Domestic swine price continued to rise, up 2.8% to Bt74/kg in February from Bt72/kg in January, continuing above our 2014F average of Bt68/kg. The livestock industry is expected to be little affected by the political unrest and domestic consumption slowdown in 1H14: the March onset of the hot season will reduce broiler supply and we expect price to stay at Bt40-44/kg.

Feed costs up slightly. Prices for major animal feed ingredients corn (40%), soybean meal (30%) and fish meal (30%), edged up slightly in February on concerns of a drought in the Americas, the world's major growing area. However, the spread between meat prices and feed raw material costs is high and we expect the livestock industry to enjoy a good margin in 1Q14.

- Corn price rose to Bt8.5/kg in February from Bt7.3/kg in January, but it remains below Bt10/kg. We note a short-term concern about the problems in Ukraine, which is the world's third largest exporter. If its corn does not get to market this year, a reduction in overall supply will raise corn prices. This would be more detrimental to CPF and GFPT than to TUF.

- Soybean meal: February price was Bt20.3/kg, down from Bt20.5/kg in January, as usual moving opposite to corn price, in line with farm supply balance.

- Fish meal: Price in February price increased to Bt27.4/kg from Bt25.4/kg. The climb in price is a sign that the shrimp business in Thailand is recovering.

Shrimp. February price was Bt270/kg, the fourth month without a rise and we thus expect prices to come down in 2014 - good news as it would indicate better shrimp availability. CPF and TUF believe the greater availability of baby shrimp in early 2014 is indication the industry is recovering.

Tuna. Price in February fell to US$1,225/ton from US$1,275/ton in January, the lowest for three years. TUF will be able to widen margin from branded tuna, which accounts for 70% of its gross margin. Although hurt by some inventory loss, we believe the reduction in tuna price will be less problematic for TUF than in the past, since it now has a greater proportion of branded product, where price and margin are higher and more stable than in the volatile OEM market.

Pick TUF for our March pick: To avoid risk from raw material, corn, climb up, in response to outstanding performance with both tuna and shrimp in recovery. We estimate 2014F quarterly core profit at Bt1.4bn. Our target price is unchanged at Bt75.

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