Strong 2H14 outlook
Following the post-results analyst meeting, we remain confident that GFPT will achieve strong FY14-15 earnings growth, led by export volume expansion and a fatter domestic byproduct sales margin. There could be scope for upside from additional exports to McDonald's Japan and Russia in 2H14. Our BUY rating stands.
We estimate GFPT's 3Q14 export sales volume at 2,433 tonnes/month, up by 38% YoY and 4% QoQ, led by increased raw chicken export volume to Japan and Malaysia (from 600t/month in 2Q14 to 766t/month in 2H14). We assume a mean export price of US$4,200/t for the quarter, up 1% QoQ (but down 13% YoY), thanks to strong chicken demand in global markets. GFPT's export volume should rise by 5-7% in FY14 and 5% in FY15. Of GFPT's total export volume, 57% goes to Japan, 31% to the EU, 11% to Malaysia, the remainder to other Asian countries.
GFN's chicken export volume is currently 2,000t/month (1,600t/ month of processed chicken to Japan and the EU and 400t/month of raw chicken to the EU). We expect its slaughtering rate to rise by 9% in FY14 (to 120k birds/day) and its fourth processed chicken line (1,800-2,000t/month) to start operating in FY15. For McKey, its production will rise 11% to 2,000t/month in Sept to cater to additional processed chicken demand from McDonald's Japan.
Scope of upside from McKey Japan and Russia
McDonald's Japan hasn't yet announced when it will resume importing chicken from China (it halted sourcing from China because of food safety issues). We think it could take up to two years for Chinese suppliers to be allowed to resume shipments. In the interim, Thai chicken operators (including GFPT) will benefit. GFPT confirmed that several Japanese chicken importers have approached the firm for additional orders. We estimate at least 400 tonnes/week of additional McDonald's Japan orders for Thai chicken during 2H14. We estimate that McKey Thailand could take up to 200t/month of the additional orders from McDonald's Japan.
Also Russia's Ministry of Commerce is talking with Thailand with a view to importing Thai chicken. We expect new shipments in 3Q14.
Fatter domestic byproduct margin in 2H14
The farmgate domestic chicken price was sustained at Bt42/kg in July, then rose Bt44-46/kg in mid August, due to the Chinese Ancestor Worship Festival. We expect a strong mean chicken price of Bt42-43/kg in 2H14, even though the quarter is normally low season (rainy season and the vegetarian festival in October). Given lower raw material prices in 2H14, we expect a fatter HoH margin for domestic byproduct sales in 2H14.