Charoen Pokphand Food

Q4 2012 profit likely disappointing

Charoen Pokphand Food Plc (CPF)

Rough path in 2012, believing to grow outstandingly in 2013

CPF's 4Q12 net profit is projected to stand at B510m or 78.8% QoQ decrease,

hitting 2012's record low due mainly to the follow reasons. 1) According to the

low season for export, sales volume in every type of products tends to decline

QoQ. 2) As a result of EMS outbreak among vannameis which is more

severe than expected, the domestic vannamei production has partially been

absent from the market. Accordingly, this has negatively affected the company's

shrimp business in Thailand which contributes 12% of the total revenue (6% of

shrimp feed, 4% of shrimp farming, and 2% of processed and cooked food). 3)

Thai animal farming business still has faced constant loss (28% of the total

revenue). In 4Q12, the average selling prices of broiler and live hog were B38.6/kg

and B54.7/kg respectively, which weren't enough to cover all production cost due

to increased prices of raw materials (especially corn and soybean meal).

Nevertheless, the profit sharing in 4Q12 from associated companies (mainly from

CPALL, as 31% is held by CPF) is projected to remain constantly strong at B1bn.

Moreover, the livestock feed business in China or CPP acquisitioned by CPF in early-

2012 (28% of the total revenue) still has exhibited continuously good operating

result in this quarter. However, this isn't enough to offset all abovementioned

negative factors; therefore, deceleration is seen in 4Q12 net profit forecast.

Anyway, we haven't included the possibility that the company might recognize

extraordinary profit from, from example, selling of investment which is the upside

that would drive 4Q12 operating result to go further than projected. Overall, CPF's

FY2012 net profit is projected to stand at B19.1bn or 20.4% YoY increase, lower

than our current forecast by 3.2%.

Revise down 2012-13 forecast… but 2013 norm profit projected to grow 57% YoY

We're confident that CPF's 2013 net profit (extraordinary item not included) would

recover outstandingly once again due mainly to the recovery of domestic animal

farming business. Thai meat price has signaled continuous increase after

entrepreneurs' reduction of production capacity. Evidently, the recent broiler and

farm-gate pig prices (21 January 2013) stand at B42/kg and B65/kg respectively,

which are higher than the production cost already. For the time being, an outbreak

among shrimps has gone much more severe than expected, so the domestic

vannamei production is likely to decrease. This is a negative effect toward CPF's

shrimp business which hasn't been included in our forecast. However, Thai

entrepreneurs have teamed up to solve this outbreak problem by ceasing the

production of baby shrimps all at once for 2 months in order to get shrimps centers

sanitized. Accordingly, the mentioned problem should be alleviated in 2Q13;

therefore, this problem would only be temporary.

Share price substantially reflects negative factors already…only wait for recovery in 2013

The fair value, using 17x PER, at end-2013 stands at B38.38. There is still 12%

upside from the current share price. Although CPF's 4Q12 operating result isn't

likely going to be so bright and might pressure the share price in a short term,

we're convinced that the share price has substantially reflected negative factors

already. Combined with recovery signal of meat price after entering Chinese New

Year festival, we reiterate our recommendation of "BUY" for CPF.