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Charoen Pokphand Food

Revise up FY2014-2015 earnings forecast as Japan resumes importing Thai/ chicken BUY

Charoen Pokphand Food Plc (CPF)

Japan has officially declared to lift a ban on import of frozen chicken from

Thailand from 25 December 2013 on, after approving that Thailand is free from

avian flu. Thus, Thailand's 2014 chicken export volume is projected to increase

by 26%yoy to 670,000 ton (preliminarily projected to grow by 7%yoy to

570,000 ton, excluding this positive factor). This would benefit CPF, as it has a

share of 20% in chicken export market. Moreover, despite a decrease in feed

mill raw material cost, Thailand's domestic living chicken price would stay high in

2014, as chicken export is likely to increase significantly at a faster rate than

production capacity.

- Revise up FY2014 earnings forecast. Core business to rebound greatly in 2014

We revise up net profit forecast by 1.2percent for 2014 and 1.0percent for 2015 to reflect

possibly increasing frozen chicken export volume after Japan has lifted a ban on

raw chicken import from Thailand. According to the new forecast, CPF’s net

profit is projected to grow by 35%yoy. Aside from Japan’s resumption of raw

chicken import, CPF would also benefit from shrimp business (20% of total

income) that has rebounded to profit after a disease problem has relieved.

Shrimp farmers have more confidence on disease prevention and resume shrimp

farming. Despite the risk, shrimp business is likely to have high return due to

attractively high shrimp price. Thus, number of shrimps sold in the market is

expected to increase. Livestock business (80% of total income) is likely to

benefit from lower feed mill raw material cost in 2014. Thanks to suitable

weather, large amount of corn and soybean product would be exported

throughout the world, possibly boosting FY2014 gross profit margin to 12.52%.

Moreover, CPF, one of Thailand’s leading food exporters, would benefit from THB

depreciation. As 65% of CPF’s income is in foreign currencies, whereas 50% of

its cost is in foreign currencies, CPF is the sector’s third advantageous company

from weak Baht.

- "BUY". New fair value is B33.71. Lots of positive factors

We reiterate "BUY". We revise up end-2014 fair value (GGM, 2.18x PBV, 17.5%

long-term ROE) from B33.69 to B33.71, implying 8% upside with dividend yield

expected at 2.4%p.a (paid twice a year).

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