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Charoen Pokphand Food

Turnoaround in 2014

Charoen Pokphand Food Plc (CPF)

Turnaround for core businesses in 2014

According to the analyst meeting, CPF has been confidence that FY2014 profit

would rebound significantly. Overall sales volume is projected to grow by over

10%yoy owing to the following factors: 1) For domestic businesses, CPF’s

livestock business (hog and chicken) is projected to benefit from decreasing raw

material cost. Chicken price is likely to stay high due to low supply. Though

poultry farmers have been expanding their production capacity, it is not likely to

meet the demand because Japan has resumed importing Thai raw chicken,

significantly boosting Thailand’s chicken export in 2014. CPF’s aquaculture

business (shrimp feed, shrimp farming and processed shrimp) are likely to

rebound to profit from 2Q14 on, as shrimp farmers have resumed raising

shrimps. Sales of young shrimps have increased from 1 billion young

shrimps/month in 1H13 to 1.7 billion young shrimps/month, signaling recovery

in Thailand’s shrimp business. 2) Overseas businesses are expected to recover.

Profit from livestock business in Vietnam is likely to improve after oversupply

problem has subsided. Moreover, Profit from livestock business in India is likely

to grow after previously massive investment. Overall, we maintain CPF’s

FY2014-2015 earnings forecast; projecting net profit to grow by 57%yoy and

32%yoy, respectively.

- 4Q13 profit drops 33.7%qoq

CPF’s 4Q13 net profit was B1.75bn, falling by 33.7%qoq but leaping six folds

yoy (lower than expected), as profit from fund selling was booked at only

B1.75bn (expected at B2bn). Excluding extraordinary items, CPF’s 4Q13

normalized loss was B61m (slightly lower than expected; versus B887m

normalized profit in 3Q13), as a result of these factors: 1) Profit from domestic

businesses declined qoq. Livestock business was affected by low season and

livestock product priced fell while feed mill raw material cost stayed high, close

to 3Q13. Moreover, Shrimp business faced loss. Though shrimp farmers could

prevent EMS, a small amount of shrimp products was raised and sold in the

market because 4Q13 and 1Q14 was a low season for shrimp business. 2) Profit

from overseas businesses declined slightly qoq. Profit from feed business in

China dropped as it was a low season for livestock business. Overall, FY2013 net

profit was B7bn, contracting 62.4%yoy

- 2H13 average dividend yield at 1%

We reiterate to buy. FY2014 fair value (GGM, 2.2x PBV) is B33.80, implying

23% upside. 2H13 dividend is B0.25/share (1% dividend yield). XD date is 6

May 2014, and dividend will be paid on 23 May.

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