Charoen Pokphand Foods – CPF - BUY
Target price : Bt4.52
Recommendation : BUY
Closing Price (13 May 09) : Bt3.82
1Q09 profit above forecast
- Sales edged up a modest 3% in 1Q09 but net profit for the quarter rose as much as 71% YoY on the back of a turnaround in the livestock business.
- We raise our 2009 earnings view for CPF by 3% to reflect the sustained high product prices.
- We reiterate a 'BUY' recommendation on CPF but we lift our price target to Bt4.52/share.
1Q09 profit above forecast
CPF, Thailand's largest chicken exporter posted a better-than-expected net profit of Bt771m in 1Q09. The profit figure was 71% and 153% better than the Bt451m and the Bt305m it achieved in the same quarter of last year and in the prior quarter respectively. The results beat our forecast and market consensus, as average selling prices rose back above the break-even point and CPF also benefited from lower raw material prices. Sales however edged up a modest 3% YoY to Bt34,779m as a result of shrinking sales volume and lower average selling prices. The livestock business accounted for 66% of the total sales. In this quarter, sales at livestock business rose 4% YoY, as higher average selling prices for pork boosted revenue from pork products up 30% and drove export sales higher by 9%. Sales of animal feed and chicken shrank 5% YoY. The aquaculture business contributed 19% of the total sales in this quarter. Sales at aquaculture business were flat as export sales slipped by 9% but domestic sales jumped 17% YoY. Overseas operations contributed 15% of the total sales. Sales at overseas operations fell 3% YoY, as sales from the livestock business contracted 12% while sales from the aquaculture business grew 26% YoY. Higher average selling prices and lower raw material costs pulled gross profit margins up to 14.8% against 12.1% and 12.8% in 1Q08 and 4Q08 respectively. SG&A expenses stayed high on the back of marketing campaigns to promote products under CPF brand. Equity contribution plunged 47% YoY. Interest expenses upped 6% YoY. FX gain narrowed 91% YoY to Bt27m from a year-ago level of Bt294m.
2009 earnings outlook raised by 3%
The overall operating results came in better than expectations. Chicken, egg and pork prices are likely to stay at high levels. The current pork prices of Bt62/kg, egg prices of Bt2.50/egg and chicken prices of Bt36/kg are also above raising costs. The operating outlook is therefore likely to remain strong. Despite a rise in raw material prices, the low-cost inventory should enable CPF to maintain the high level of gross margin. We also nudge up our 2009 sales forecast for CPF to Bt162,488m, up 4% YoY. Margins for the year are expected to be better than a year earlier on the back of higher average selling prices. SG&A expenses should be similar to the year-ago level. We also raise our 2009 net profit outlook for CPF by 3% to Bt3,379m, up 8% YoY.
BUY recommendation with new price target of Bt4.52/share
We reiterate a BUY recommendation on CPF but we lift our price target to Bt4.52/share, based on a P/E of 9x.
By Phillip Securities (Thailand) Plc. on May 14, 2009
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