We expect operational recoveries across most units in 2Q14 (but not the Thai shrimp unit or subsidiaries in Malaysia and the Philippines). Our BUY rating stands, premised on a FY14 earnings recovery, led by sustained good livestock margins and improved overseas bottom-lines.
Insights into 2Q14—a YoY core turnaround
Our model points to a Bt3.0bn net profit for 2Q14, up by 83% YoY and 46% QoQ. Stripping out FX and a gain from trading CPALL shares, we assume a Bt2.53bn core profit, up 45% QoQ and a turnaround from a Bt842m core loss in 2Q13. The YoY core turnaround was led by fatter domestic livestock margins and better bottom-lines across all ex-Thailand units except the Philippines. The expected QoQ core profit rise is attributable to slightly fatter domestic livestock margins, modestly better Thai shrimp unit numbers and stronger overseas operations (except for the Philippines and Malaysia)—Turkey, Russia, India and Vietnam will all post QoQ bottom-line improvements.
Fatter livestock margin but a Thai shrimp loss in 2Q14
The domestic pork price surge would have offset the effect of a modest decline in domestic chicken prices and further rises in the cost of corn and SBM in 2Q14. The mean chicken price fell by 12% YoY and 4% QoQ in the quarter, but the pork price rose by 19% YoY and 8% QoQ. The average corn price fell 6% YoY but rose 17% QoQ. The SBM price was up by 17% YoY and 3% QoQ. We assume that the Thai shrimp unit will post a Bt950m operating loss for 2Q14, shallower by 10% QoQ but deeper by 2% YoY—the red ink is attributable to low industry-wide shrimp output in the quarter.
Most overseas units will report better numbers for 2Q14
The Turkish unit should post a small net profit for the quarter against a Bt260m net loss for 2Q13 (it broke even in 1Q14), led by a chicken price recovery. We expect the Vietnamese unit to announce a 50% QoQ profit jump and a YoY turnaround, driven by a higher pork price and a swift shrimp recovery (outpacing Thailand and Malaysia). The Indian net profit will jump 178% YoY and 39% QoQ, we expect, led by higher chicken prices and a strong shrimp business. The Malaysian unit will post a net loss (it broke even in 1Q14), dragged into the red by a weak shrimp operation. The net loss in Russia will be 32% QoQ shallower, we estimate, due to its consolidation of RBPI.
We expect the net loss at the Philippines unit to deepen by 114% YoY and 100% QoQ, due to heavier depreciation. The feed business in China will be stable QoQ—the rise in pig feed sales should have more-or-less offset the effect of lower sales of chicken feed.