Analyst Upgrades TFG to “OP” with a TP at ฿5.30, Expecting Higher Sales Vol.-Swine Prices

The share price of Thaifoods Group Public Company Limited (TFG) closed flat at ฿4.72/share in the morning session of August 13, 2020, after the company reported a 2Q20 net profit of 431 million baht, decreased 16.9% YoY and 35.7% QoQ and announced an interim dividend of Bt0.03/share.

 

KGI Securities has upgraded TFG’s rating from “Neutral” to “Outperform” and increased the target price from ฿4.50/share to ฿5.30/share while stating that TFG’s core earnings of Bt459mn in 2Q20 has beaten its estimate by 48.1%, resulting in KGI to revise up the earnings forecasts by 6.8%-16.5% over the next three years to reflect higher sales volume and elevated swine price.

 

TFG registered total revenue of Bt7.2bn (stable YoY, -8.3% QoQ). The decline QoQ was mainly due to lower sales volumes for both broiler and swine, which should reflect softening consumption during the lockdown. Nonetheless, the reported revenue still topped KGI’s estimate by 4.5%. KGI stated that the company recorded an impressive GPM of 14.1% in 2Q20, up from 12.3% in 1Q20. This should be from the lag effect on low feed prices. Its SG&A-to-revenue ratio came in at 5.1%, slightly higher than 5.0% in 1Q20.

 

TFG reported a swine sales volume of 25.6K metric tonnes in 2Q20 (+7.9% YoY, -4.5% QoQ). The increase YoY should be driven by higher fattening swine capacity while the fall QoQ should reflect the negative impact from the COVID-19 outbreak. On the other hand, its total broiler sales volume was 82.8K metric tonnes (-0.9% YoY, -13.4% QoQ). KGI believed that the large decline QoQ was from lower broiler exports to key markets, which should also suffer from lower consumption.

 

KGI raised its core earnings forecasts by 6.8%/15.8%/16.5% during 2020-2022, largely to take into account improved sales volume and higher swine price. KGI revised up broiler and swine sales volume by 1.2%-5.1% and 4.7%, respectively, over the next three years. Also, KGI now expects swine prices to stay at a high level of Bt67.5-Bt69.2/kg, up from Bt65.0-Bt66.0/kg earlier, to reflect a tight demand-supply balance.

 

Based on KGI’s earnings revision and rolling over its base year, KGI derived a new 2021 target price of Bt5.30, pegged to an unchanged target PER of 15.9x, +0.5SD above Charoen Pokphand Foods PCL (CPF)’s long-term historical average.

However, KGI stated that lower-than-expected broiler export volume, weaker-than-expected broiler and swine prices, and rising feed cost are risks to TFG’s upside.