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Charoen Pokphand Food

Negative factors subsides Rec. : HOLD

Charoen Pokphand Food Plc (CPF)

CPF was previously affected by pressure from human trafficking

issue and feed mill raw material cost hike. Though the pressure has

currently subsided, the share price still has a limited upside


- 2Q14 net profit to surge 42.3%qoq

We estimate CPF’s 2Q14 net profit at B2.92bn, increasing 42.3%qoq and

78.3%yoy. Excluding B500m extraordinary from selling of investment, 2Q14

normalized profit is projected at B2.42bn, growing 28.4%qoq due to the

following factors: 1) For domestic livestock business (30% of total income),

gross margin is expected to improve significantly. Pork price has risen by

8%qoq, while its feed mill raw material cost is likely to stay unchanged

thanks to inexpensive feed stock from early-2014. 2) Livestock business in

Vietnam (14% of total income) is projected to revive outstandingly.

Oversupply problem has subsided, so pork and chicken prices have

increased beyond the production cost. Similarly, shrimp business has also

recovered continuously after EMS receded.

- Maintain forecast. Limited downside

We maintain our FY2014-2015 earnings forecast. Initially, FY2014 earnings

forecast showed downside because major international retailers have

temporarily stopped importing goods from CPF. However, Carrefour has

recently acknowledged CPF’s explanation and resumed purchasing its

goods; other customers are likely to resume buying its products as well. In

addition, feed mill raw material cost has declined; worldwide feed

undersupply problem has subsided because more corn and soybean mill

from the US have been sold in the market. Still, we are concerned about

weather and feed production in South America (e.g. Brazil and Argentina);

drought will decrease feed supply and raise feed mill raw material cost

worldwide.

- Share price has limited upside

We recommend HOLD for dividend. FY2014 fair value (GGM, 1.80x PBV,

15.8% long-term ROE) of B28 implies limited upside.




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