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Charoen Pokphand Food

Safe from political turmoil. Core business to rebound from weak THB BUY

Charoen Pokphand Food Plc (CPF)

- 4Q13 net profit to drop qoq due to low season

We project CPF’s 4Q13 net profit at B2.16bn, falling 18%qoq but skyrocketing

eight fold yoy. However, excluding B2bn extraordinary income from selling of

investment, 4Q13 normalized income would be B161m, falling 82%qoq (but

rebounding from B2.12bn loss in 4Q12), due to the following factors: 1) Net

profit from domestic businesses is expected to drop qoq. Livestock business

(35% of total income) would be pressed as a result of low season for food export

and a decrease in livestock price. 4Q13 pork farm gate price and live chicken

price were B65.95/kg (falling 4.7%qoq) and B39.61/kg (falling 13.1%qoq),

respectively. Moreover, feed mill raw material cost stayed high, close to 3Q13.

Though 4Q13 corn price decreased by 16%qoq, the four-year lowest, CPF still

had feed stock from the previous quarter, so it would not benefit from lower raw

material price. Still, CPF might substantially benefit from this from 1Q14 on. For

shrimp business (8% of total income), despite farmers’ prevention of EMS, CPF

would still face loss as small amount of shrimp product was sold in the market

and 4Q-1Q is usually a low season for shrimp business. Thus, 4Q13 shrimp

production would be low. 2) Net profit from overseas businesses is expected to

drop slightly qoq. Profit from feed mill raw material business in China would fall

as it was a low season for livestock business in China. 3) Share of profit from

associated companies is projected to drop by 10%qoq, mainly from a decrease

in CPALL’s net profit (CPF holding 32percent stake). Thus, CPF’s FY2013 net profit is

projected at B7.5bn, falling 60%yoy, 8% below our FY2013 net profit forecast.

- FY2014 net profit to leap 41%yoy. Livestock and aquaculture businesses to rebound

We maintain our FY2014-2015 net profit growth forecast at 41%yoy and

31%yoy, respectively, due to the following factors: 1) Domestic businesses have

been recovering significantly, especially for livestock business (pork and

chicken), as feed mill raw material cost has continued declining. Soybean meal

price has fallen as higher amount of soybean products from North and South

America has been sold in the market, and corn price (100% produced in

Thailand) has dropped due to decreasing demand for corn in biodiesel

production. Aquaculture business is likely to rebound to slight profit. Shrimp

business is likely to start making profit from 2Q14 on after EMS problem has

subsided, and sales volume for shrimp business (shrimp feed and processed

shrimp) is expected to rebound significantly in 2014. 2) Overseas business is

projected to improve. Livestock business in Vietnam has started making profit

after oversupply problem has been solved. Thanks to these factors, CPF’s net

profit is projected to leap in next two years.

- "BUY". Core businesses to recover thanks to weak Baht

We derive end-2013 fair value (2.2x PBV) at B33.78, implying 13%. We believe

that the share price has substantially absorbed negative factors. Also, FY2014

earnings results it likely to rebound, boosting CPF’s share price. We recommend

"BUY".




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