Analyst Sees a Robust Growth in CPF’s 3Q20 Profit, Giving “BUY” Rating with TP of ฿37.5

Maybank Kim Eng maintained a “BUY” recommendation on Charoen Pokphand Foods Public Company Limited (CPF) with a target price of ฿37.50/share, expecting a robust growth in 3Q20 after the consumption in Thailand recovered.

 

Maybank expected CPF’s 3Q20 core profit to grow 71% YoY, thanks to the 11-year high gross margin driven by strong swine prices in Thailand and Vietnam. Even with rising soybean meal prices lately, CPF’s gross margin is estimated to remain solid on the back of favorable swine prices. The acquisition of swine and feed operations in China will deliver 12% upside for CPF’s 2021 earnings. 

 

The net profit is forecast at ฿6.51 billion (+8% QoQ, +71% YoY). Excluding extra items, Maybank estimated core profit to grow +13% QoQ, +71% YoY to ฿5.51 billion. The level of consumption in Thailand, China and Vietnam has recovered after easing of lockdown and we are now entering the high season. Domestic swine price rose 14% QoQ, 22% YoY to ฿80/kg while the price in Vietnam soared 100% YoY to >VND75,000/kg. With raw material cost stable, CPF’s gross margin is projected to expand 495 bps YoY to 18.5%, an 11-year high. Offsetting the strong core operations, is lower equity gains, -8% YoY due to weak earnings of CPALL.

 

Swine operations should remain promising as strong swine prices fueled from shortage supply continues for at least another year. Due to rising demand from China and lower supply from the US, soybean meal raw material prices have increased to ฿15/kg (+7% YoY). However, CPF has inventory to support operations until Feb-Mar 2021 priced at below ฿14/kg. The acquisition of swine and feed businesses in China should generate 12% upside to the current 2021 earnings projections.

 

The business’ challenge includes disease outbreaks in animal farming and labour issues, together with the management of consumption of energy, water and single-use plastics throughout the value chain. The sustainable food packaging, standard production facilities, safety food and traceability throughout the food chain will be another key issue. CPF manages both issues effectively while catering to changing demands from consumers.  

 

In addition, Maybank indicated risk factors to be aware of such as falling meat prices, increasing feed prices and slow global economy.