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Charoen Pokphand Foods

4Q13F preview: Shrimp still shrinking BUY

Charoen Pokphand Foods Plc (CFP)

4Q13F preview: Shrimp still shrinking

4Q14F preview: We estimate total sales of Bt95bn, -10% QoQ, with net profit of

Bt2.3bn, -13%QoQ; including profit share from CPALL of Bt995mn brings growth of

12%QoQ. Vietnam and China continued to perform well in the quarter, with estimated

4Q13 net profit of Bt400mn and Bt1bn. Its Thai livestock business (broiler and swine) is

expected to report a good performance in 4Q13, backed by good product prices and

spread. The shrimp business is expected to disappoint with losses greater than the

profit from the livestock business and CPF is thus expected to report a pure operating

loss of Bt105mn. This is, however, improved from the losses of Bt410mn in 3Q13,

Bt2.7bn in 2Q13 and Bt2.1bn in 1Q13.

Shrimp. CPF expects its Thai shrimp operations to reach breakeven in 2Q14, with gross

margin in the positives after -6.5% in 9M13 and -13.2% in 3Q13. In 2013, Thai shrimp

production came to 260,000 tons, nearly halved from 2012. Production is expected to

grow 20% in 2014 to 312,000 tons per annum, with CPF holding ~15% of Thailand's

shrimp market share. Current price shows a small decline to Bt270kg from Bt275/kg in

November. We estimate average 2014 price at ~Bt220/kg, compared to an average of

Bt231/kg in 2013. CPF is working to increase shrimp production to 3,000 tons/month

from 2,000 tons/month, still well below breakeven of 4,000-5,000 tons/month. It

expects to reach that level in 2Q14.

Livestock (broilers and swine). CPF maintains production at 5mn chickens per week,

keeping market share at 20-25%. This business looks better in 2014 as Japan is again

opening its doors to imports of Thai fresh broiler products. The addition of Japan

orders will boost CPF's sales by Bt5bn per year and net profit by Bt200mn, +1.4% of its

operating profit. Current broiler price is Bt42/kg, with cost of production at Bt37/kg,

down from 2013's Bt40/kg. CPF enjoys a good margin on its livestock products. Swine

price is stable at Bt68/kg against cost of Bt58/kg, down from last year's Bt62/kg. The

steady decline in the price of animal feed raw materials will widen spread.

Overseas. The lead performer in 4Q13F and 2014 will be CPP (Hong Kong). China

operations are strong with a gross margin of 15%, but the best turnaround will be in

Vietnam where there will be a strong recovery in the swine business, after an

oversupply in 1H13 (>50% of sales in Vietnam come from swine), and in the shrimp feed

business as well. The most disappointing overseas business unit is Turkey with a loss of

Bt800mn in 9M13, as the country is in the midst of a recession and there is fierce

competition in the local broiler business. CPF forecasts Turkey to lose only Bt500mn in

2014 after changing various things including management.

Maintain BUY with the target price of Bt35. We revised down earnings in 2013 by

8% but changing slightly in 2014 earnings. We maintain our BUY with a target price of

Bt35, based on 16xPER in 2014.

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