Analyst Recomm. “BUY” CPF at ฿35.8, Seeing 1QProfit to Surge due to High Swine Prices

Maybank Kim Eng Securities (Maybank) has made an analysis on Charoen Pokphand Foods Public Company Limited (CPF), maintaining the “BUY” recommendation with a target price at ฿35.80/share.

 

Maybank expects CPF’s 1Q20E normalised profit to increase strongly due to the significant rise in Vietnamese swine prices and the profit contributed from HyLife. High swine prices in Thailand and Vietnam will underpin this year’s earnings growth. And Maybank still maintains earnings forecast that Covid-19 impact should be minimal. 

 

Maybank maintains BUY with a SOTP-based target price of ฿35.80/share comprising of CPF at ฿11.10/share derived from 15x FY20E P/E (3-yr average) and CPALL at ฿24.70/share from DCF (WACC 7.2%, LTG 4%).

 

1Q20 normalised profit  +48% YoY

Maybank expects normalised profits to soar 48% YoY, 17% QoQ to ฿4.84 billion. Although sales to food services likely fell due to Covid-19, Maybank thinks it was offset by increased sales to retailers due to a change in consumer lifestyle (staying home) and pantry stocking. Also, meat prices remained high, especially for swine in Vietnam jumping 60% YoY, 15% QoQ to VND75,000/kg. Swine prices in Thailand stayed quite high at ฿72/kg (+20% QoQ, -1% YoY) while broiler prices were stable at ฿35/kg above production cost of ฿33/kg. Maybank therefore expects 1Q20 gross margin to increase 200bps YoY to 16.1%. In addition, HyLife, a fully integrated swine business in Canada acquired in late 2019, will post good earnings from increased exports including to China and Japan.

 

Swine prices in Thailand and Vietnam remain high  

Swine price in Vietnam, currently at VND 72,000/kg, is likely to remain high throughout the year as supply has yet to recover from the 30% drop due to ASF. It is very profitable at this level as cost is still low at VND36,000/kg. Swine prices in Thailand have declined slightly to ฿68/kg but still above production cost (฿58-60/kg). 

Maybank expect swine prices to remain high this year as the drought will likely affect small-scale pig farming. Exports will also create pressure on prices due to pork shortage caused by the ASF outbreak. Vietnam is 16% of CPF’s sales.  

 

Expect limited impact from Covid-19

Maybank stated that even the Covid-19 pandemic has a limited impact on CPF, but its production is still operating normally. There are some minor hiccups in logistics but this is short-term. The price of key feed ingredients, corn and soybean meal, have stayed low. To preserve liquidity CPF cut its marketing expenses and may delay some of the investments planned this year.

 

Risks: Meat prices fall / increased feed prices / slow global economy