The Attractiveness of CPF through CPP’s Outstanding Performance

The movement of C.P. Pokphand Co., Ltd. (CPP) in Hong Kong Exchange has become quite interesting in the past 1-2 months. The share price rose 30% to trade above HK$1, reflecting high confidence from investors with a solid trading volume.

 

The magnet that charms investors is the fact that CPP operates in the agricultural and food business. The company is also one of the top five in animal feeds, while having swine farms, chicken and shrimp business in China and number one in Vietnam.

All of the businesses have solid results, especially the swine price in China and Vietnam that rose non-stop in 2020 due to the ASF outbreak in both countries, resulting in shortage of swine.

 

However, CPP’s swine business was able to prevent ASF perfectly, resulting in higher GPM for the company significantly. This results in positive sentiment to Charoen Pokphand Foods Public Company Limited (CPF) as a direct and indirect shareholder of CPP at a higher stake than 50%. The positive sentiment and higher meat price is expected to continue to buoy CPF for the next two to three years.

More importantly, the upcoming highlight will be the announcement of 4Q20 earnings that is expected to report at 7,391 million baht which is more than a fold compared to the same period of last year, even though revenue is estimated to decline to 138,750 million baht. Overall, an estimated net profit for the year is 27,000 million baht. Partially, an increase in profit will be from a recognition of an extraordinary item around 2,400 million baht.

 

Looking at the mid-long term, even though the Tesco and CTI deals are pressuring CPF’s financial cost in 2020, the deal will be able to push CPF’s net profit higher around 15-20%.

 

Which is why the hot-hit CPP is reflecting attractiveness in CPF as a major shareholder.