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Charoen Pokphand Food

Rebound in CPF's every business, especially export, is foreseen in 2H14 thanks to increasing orders from Russia and Japan. We upgrade our recommendation to BUY. The new fair value is B34.

Charoen Pokphand Food Plc (CPF)

- 2Q14 net profit better than expected due to extraordinary profit

2Q14 net profit was reported at B3.55bn, climbing 73%qoq and 116.8%yoy

mainly thanks to higher-than-expected extraordinary profit. Excluding

extraordinary items, 2Q14 normalized profit was B2.19bn, slightly lower

than expected but rising 16.2%qoq, thanks to the following contributions:

1) For livestock business in Thailand, pork price rose by 8%qoq while feed

mill raw material cost did not increase significantly thanks to its

inexpensive feed stock from early-2014.

2) The livestock business in Vietnam rebounded significantly because the

oversupply problem receded. Shrimp business also recovered

continuously after EMS problem subsided.

- Revise up FY2014-2015

2H14 profit might possibly grow beyond projection; livestock export is

projected to rebound because the tension between Russia and western

countries and Japan’s ban on import of chicken from China would increase

CPF’s orders from trading partners. Moreover, feed mill raw material price

has been declining; projection on the US’s larger production of feed mill raw

material has relieved concern on feed shortage problem. We revise up net

profit forecast by 6.3% in 2014 and 5.4% in 2014.

- New fair value is B34

We upgrade our recommendation from HOLD for dividend to BUY. Under the

new revision, FY2014 fair value is revised up from B29 (GGM, 2.1x PBV,

15.8% long-term ROE) to B34 (GGM, 2.1x PBV, 17.2% long-term ROE),

implying 17% upside. CPF’s interim dividend will be paid at B0.30/share

(1% dividend yield). XD date is August 26, 2014; the dividend will be paid

on September 12, 2014.


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