The Nation




Japan exports boost 2Q14 profit BUY


- 2Q14F net profit estimated at Bt454mn, +50%YoY and +7%QoQ

- Strong Japan exports to build sales volume from this year

- Upgrade to BUY but maintain target price of Bt14.5, 14% upside left

2Q14F: Net profit to be Bt454mn (+50% YoY, 7% QoQ), on higher sales volume, stable gross margin. GFPT's broiler exports are estimated at 6,500 tons in 2Q14, +6.6% QoQ from 6,100 tons in 1Q14. The growth reflects resumption of exports to Japan and more to Malaysia. This will bring 1H14 exports to half of our 2014 forecast of 25,000 tons, growth of 11.1% YoY. 2Q14 domestic sales are estimated at 15,500 tons, stable from 1Q14, with 2014 domestic broiler sales forecast at 62,500 tons, +5.2%YoY. Indirect export volume is estimated at 3,200 tons in 2Q14 with 15,000 tons in 2014. Export price is stable at US$4,400-4,500/ton. Domestic broiler prices slid 4%QoQ in 2Q14. We expect a gross margin of ~14.5percent stable from 1Q14's 14.5%. This is on track to meet our forecast 2014 gross margin of 14% vs. 13.7% in 2013.

2Q14F: Subsidiary contribution down QoQ. Management expects subsidiaries to contribute less in 2Q14. We estimate Bt78mn from GFN and Mckey combined, with McKey's relatively the same from 1Q14 at ~Bt25mn but GFN's to fall to ~Bt53mn from 1Q14's Bt57mn. However, the high season for frozen broiler exports to the EU and Japan continues from second through third quarter.

Strong Japan export market. GFPT expects 2014 to be a good year for broiler exports and hopes to increase export volume 10-20% to 2,000-2,200 tons per month (~25,000 tons in 2014) from 1,800 tons per month or 22,500 tons last year. Behind this is the increase in exports to Japan of 1,000 tons per month after 1Q14; the Japan market is believed stronger than the EU.

Minimal impact from exports to EU. Despite the halt of FTA negotiations between Thailand and the EU in June GFPT expects minimal impact this year as the Japan market is serving to replace products formerly sold to EU. At the same time, it is too early to assess the eventual impact on orders to the EU since orders for 2Q14 and 3Q14 are already in. Here at home, supply and demand are continuing to be fairly evenly matched since large operator Saha Farms is still troubled.

We upgrade to Buy from Neutral on 14% upside to TP of Bt14.5. Although we are concerned about the long-term outlook for chicken exports on a shrinkage in spread from peak in 3Q13, we expect GFPT to achieve profit of Bt400-Bt500mn per quarter, which we see as satisfactory. The stock price has fallen 6.6% over the previous three months and is -0.78% YTD, despite the 10% growth in 2014 earnings expected - a remarkable turnaround from 2013. It is now trading at a PER of 9.7x. We leave target price at Bt14.5 (rolling to 11x 2015 PER).

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