KGI Expects Food Sector to Recover in 2H, Raising TP of CPF to ฿38 with Top Pick Rating!

KGI Securities sees a recovery of product prices for the Food Sector on the horizon from the lockdown easing measures, while broiler exports should benefit from potential disruption in supply from Brazil, which is suffering from the COVID-19 outbreak.

 

KGI stated that as measures, including the temporary shutdown of restaurants, to contain the COVID-19 outbreak were in effect for more than half of 2Q20, demand for meat fell accordingly. Average swine price declined to Bt69.7/kg QTD in 2Q20, from Bt72.4/kg in 1Q20.

Similarly, average broiler price declined to Bt31.7/kg QTD in 2Q20, from Bt34.6/kg in 1Q20. Product prices are expected to improve as lockdown measures have been gradually lifted in phases since mid-May 2020.

 

In the first four months of 2020, total broiler exports from Thailand totaled US$1.2bn, up 7.8% YoY. The major contributing markets were Japan and China. After COVID-19 was declared a pandemic by the World Health Organization (WHO) in March 2020, governments around the world have widely locked down cities in order to control the outbreak. This generally led to lower demand for meat globally.

However, Brazil, the world’s largest broiler exporting country has been severely hit by the COVID-19 outbreak with affected cases rocketing upward on a daily basis. This has resulted in temporary shutdowns of various broiler production plants and in turn should adversely affect the country’s broiler exports.

KGI believed that this should present opportunities for Thailand, which has so far effectively contained the outbreak.

 

Swine price in Vietnam averaged VND70K/kg in April 2020, up 68.2% YoY. As Vietnam is struggling to contain the African Swine Fever (ASF) outbreak with more than 6mn pigs being culled, the swine price continues to reach a new high. In May 2020, Vietnam Times, a leading news agency, reported that the price reached a level of VND100K/kg.

 

In this regard, KGI maintained its “Overweight” rating on the Food sector, on the back of robust product prices and positive broiler exports trend. KGI also reiterated Outperform rating on Charoen Pokphand Foods (CPF) with a new mid-2021F target price of Bt38.00, up from Bt35.00, and also maintained a rating of Outperform on GFPT Public Company Limited (GFPT) with a new mid-2021F target price of Bt14.50, up from Bt14.00.

However, KGI downgraded its rating on Thaifoods Group Public Company Limited (TFG) to Neutral from Outperform with a rolled-over target price of Bt4.50.

 

Nevertheless, KGI warned that the sector still posted some risks on the possibility of lower-than-expected meat demand from COVID-19 outbreak, higher-than-expected raw material prices, and animal epidemics.