The Nation

business

Smaller
Larger

Charoen Pokphand Food

Sales of investment in CPP to strengthen capital base HOLD



Charoen Pokphand Food Plc (CPF)



We have a positive outlook that the sales of investment in CPP

would strengthen CPF’s capital base. End-2014 D/E ratio is expected

to drop below 1x, in line with CPF’s target.

- CPF sells investment in CPP

CPF has approved to sell 6.02 billion shares of CPP to ITOCHU at

HKD1.1/share, totaling HKD6.62bn (or B27.4bn). The sell of investment is

preliminarily expected to be completed in September 2014. After completion

of the transaction, CPF’s shareholding in CPP would decrease from 74.18%

to 50.43% of CCP's total paid-up share capital.

- Stronger capital base

We have a positive outlook on the sales of investment. As CPF previously

acquired CPP in late-2011 at HKD0.9/share, it would gain B4.15bn profit

from the sales of investment (booked in the shareholders’ equity of the

consolidated financial statement); the profit would be used on debt

repayment (in line with CPF’s plan). End-2014 D/E ratio is expected to

decrease from 1.30x to 0.92x. However, as a result of the disposal of

investment, we slash CPF’s earnings by 1.2% in 2014 and 3.7% in 2015

(under the assumption that the transaction is completed at the end of

3Q14); B1.5bn profit from CPP would be excluded from CPF’s FY2014-2015

earnings, thus negating benefit from a decrease in interest expense. Under

the new forecast, CPF’s net profit is estimated to grow by 32.1%yoy in 2014

and 31.9%yoy in 2015.

- New fair value is B29

Under the new forecast, end-2014 BVS is expected to rise by 3.6% as a

result of B4.15bn profit from sales of investment. Thus, FY2014 fair value is

revised up from B28 to B29 (GGM, 1.80x PBV, 15.8% long-term ROE),

granting only 5.2% upside from the current share price. We recommend

HOLD for dividend.


Comments conditions

Users are solely responsible for their comments.We reserve the right to remove any comment and revoke posting rights for any reason withou prior notice.