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GFPT

GFN starring, raising 2013-2014 forecasts BUY

GFPT Plc

GFN doing remarkably well. GFN took the lead role in performance in the third

quarter with a profit after three years of net losses due to a difficult market

environment as well as falling domestic commodity prices. The EU lifted its ban on raw

chicken imports last year and this gave GFN a new source of revenue and GFN has

tripled its raw meat exports to the EU since July 2012. GFN has improved profitability

via expansion into additional production lines, which began operating in May 2013. GFN

recorded a net profit of Bt116mn in 3Q13, up from a net loss of Bt50mn in 3Q12, and

contribution to GFPT was Bt58mn rather than a loss as in the comparative period.

Broiler prices down, but so are feed prices. Broiler prices fell to Bt38/kg in October

and November 2013 from a high Bt47/kg in July and August 2013. Fortunately, most

feed raw material costs are also falling: corn -2% MoM and fishmeal -13% MoM,

although soybean meal was up 4%MoM. Pushing feed ingredient prices down is the

new supply from Brazil and China. Good farm yield has enabled Brazil to increase its

share of the market to 30%, taking the US's lead position. Corn and soybean meal

prices move in opposite directions because they are rotating crops, meaning demand

and supply will balance each other out.

3Q13 recap. Net profit in 3Q13 was Bt607mn, turning up sharply from the net profit of

Bt2mn in the same period of 2012. Backing the improvement was higher exports and

the better turnaround at GFN than expected. Gross margin increased to 18% in 3Q13

from 5% in 3Q12. This was combined with a 13% YoY rise in sales revenue to Bt4.4bn

from Bt3.9bn. GFPT reported very high export volume growth of 27% to 16,100 metric

tons in 9M13 from 12,700 metric tons in 9M12, far above the Thai chicken export

industry as a whole, which reported growth of only 2.4% YoY in 1H13 due to the slash

in supply from a large operator, Saha Farms. At the same time, GFPT's chicken

processing continues to comprise the bulk of its sales at Bt1.8bn, an increase of 28%

YoY.

Earnings revision and maintain BUY. We revised up net profit in 2013 by 30% to

Bt1.4bn from Bt1.1bn in response to the 3Q13 profit. We also adjusted 2014 net profit

up by 20% to Bt1.5bn from Bt1.26bn. GFPT will benefit from baht depreciation: each

weakening of Bt1 per US$ adds 1.09% to GFPT net profit. We still Buy with a target

price of Bt12.




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