3QCY12 results seen down y-y and q-q Bloomberg Reuters CPF TB CPF.BK Report type: Company Preview Company Overview CPF is a Thailand-based company engaged in agro-industrial and integrated food businesses for domestic sales and exports. The businesses are divided into two segments: livestock and aquaculture businesses. We expect CPF to report a 3QCY12 pre-exceptional profit of Bt2,273mn, down 54% y-y and 10% q-q as a result of a dip in meat prices and a q-q drop in operating performance at its overseas operations. On a pre-exceptional basis, earnings are poised for a rebound in CY13 on the back of a revival in meat prices but escalating raw material costs would push production costs higher as well. Negotiations are still underway for potential M&A deals but the deals have not yet been concluded. CPF also denied a news report that it was close to a deal to buy a stake in French retailer Carrefour. We maintain an ACCUMULATE rating on CPF with a target price of Bt36.50/share. What is the news? We expect CPF to report 3QCY12 net profit drop in both y-y and q-q terms as a result of a dip in meat prices against the backdrop of a y-y rise in raw materials prices and a q-q drop in operating performance at its overseas operations weighed by weaker meat prices. How do we view this? In our view, a likely sustained collapse in meat prices would remain a downward drag on earnings in 2HCY12 but we believe much of the bad news is already baked into the stock price. On a pre-exceptional basis, earnings recovery is expected next year. M&A deals also remain on the cards. Investment Actions? We maintain an ACCUMULATE rating on CPF with a target price of Bt36.50/share. Chareon Pokphand Foods Phillip Securities Research Pte Ltd Rating 2.00 Accumulate - Previous Rating 2.00 Trading Buy Target Price (Bt) 36.5 - Previous Target Price (Bt) 38 Closing Price (Bt) 35.50 Expected Capital Gains (%) 2.82 Expected Dividend Yield (%) 3.52 Expected Total Return (%) 6.34 Raw Beta (Past 2yrs weekly data) 0.70 Market Cap. (USD mn) 8,950 Enterprise Value (USD mn) 13,003 Market Cap. (Bt mn) 274,874 Enterprise Value (Bt mn) 402,853 3M Average Daily T/O (mn) 30.1 52 w eek range 28.25-42.25 Closing Price in 52 w eek range 50.00 40.00 30.00 20.00 10.00 0.00 Oct-11 Nov-11 Major Shareholders (%) 1. Charoen Pokphand Group Co., Ltd. 2. Charoen Pokphand Holding Co., Ltd. 3. Thai NVDR CG Rating - 2011 Dec-11 Jan-12 Feb-12 (Very Good) 25.0 11.4 Key Financial Summary FYE 12/10 12/11 12/12F 12/13F Revenue (Btmn) 189,049 206,099 348,220 382,989 Net Profit, adj. (Btmn) 11,592 14,283 9,033 15,962 EPS, adj. (Bt) 1.50 1.84 1.22 2.16 P/E (X),adj. 23.7 19.2 29.0 16.4 BVPS (Bt) 9.07 9.90 12.81 14.07 P/B (X) 3.9 3.6 2.8 2.5 DPS (Bt) 1.05 1.20 1.05 1.25 Div. Yield (%) 3.0 3.4 2.9 3.5 Source: Bloomberg, PSR est. Mar-12 Apr-12 *All multiples & yields based on current market price 0% 50% 100% 120 Volume, mn CPF TB EQUITY SETI rebased May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 80 40 0 5.4 Valuation Method P/E'13 (15x) Analyst Phillip Research Team +65 65311240 research@phillip.com.sg MICA (P) 012/01/2012 Ref. No.: TH2012_0342 1 of 9
Thailand Equities Research 3QCY12 net profit seen down both y-y and q-q We expect CPF to report 3QCY12 earnings drop in both y-y and q-q terms as a result of a dip in meat prices against the backdrop of a y-y rise in raw materials prices and a q-q drop in operating performance at its overseas operations weighed by weaker meat prices. In 3QCY12, broiler prices fell by 13% y-y and 4% q-q, egg prices dipped 17% y-y and 4% q-q and pork prices slumped 24% y-y and 7% q-q. Softer selling prices aside, oversupply problems and feeble domestic purchasing power would also be a downward drag on sales. Export sales volume would be slightly higher than the previous quarter because of an economic slowdown in Europe. Exports to Europe account for a significant share of total exports. Chicken exports would also be lower than a year ago. Operating performance at overseas operations should also be softer than the previous quarter. Like Thailand, slumping meat prices would put earnings at its Vietnamese operations under downward pressure while operating performance at other overseas operations would be similar to the previous quarter. On this basis, we forecast CPF to post 3QCY12 sales of Bt93,101mn, up 71% y-y and 1% q-q but falling meat prices and rising production costs would cut into margins in both y-y and q-q terms. Profits from affiliates would also be lower than a year ago due to the absence of profit contribution from Vietnam. Interest expenses would be higher than a year ago on increasing debt load. Overall we estimate CPF will report a 3QCY12 pre-exceptional profit of Bt2,273mn, down 54% y-y and 10% q-q. investment may not be as huge as the acquisition of Carrefour. The new investments may be in both developed and developing countries but the deals must more value-accretive synergies for CPF in the future. ACCUMULATE rating with Bt36.50/share target price We believe much of the downbeat earnings expectations for 3QCY12 are already baked into the stock price. We maintain an ACCUMULATE rating on CPF with a target price of Bt36.50/ share. Figure1: 69 65 61 57 53 49 45 Oct 11 Figure2: Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Swine Apr 12 May 12 Broiler Jun 12 Jul 12 Aug 12 Sep 12 Pre-ex earnings poised for rebound in CY13 on back of revival in meat prices Capacity additions especially by big players have caused oversupply in the market but CPF management has guided that the oversupply problems will ease early next year after producers gradually cut back production and meat prices will likely recover next year. However, a likely escalation in the prices of raw materials especially soybean meal would drive production costs higher as well. We forecast CPF to achieve CY13 sales of Bt382,989mn, up 10% y-y on the back of capacity expansion especially at overseas operations and a likely pickup in meat prices though sales volumes would rise modestly. Margins are also likely to improve on better selling prices. Profits from affiliates are projected to grow by 8% y-y on better profits from CPALL. We forecast CPF to achieve a CY13 net profit of Bt17,882mn, down 13% y-y. On a preexceptional basis, CPF is however expected to deliver profit growth of 77% in CY13. M&A deals still on the cards but CPF denies Carrefour buy report Early this month, Khao Hoon newspaper reported that CPF was close to a deal to buy 16.15% of French retailer Carrefour from four major shareholders Blue Capital, Colony Blue Investor, Groupe Arnault SAS, Blue Participation at Gestion for up to Bt87.8bn within this month. In our view, the investment value is exceptionally high and if the deal really takes place, we think CPF may need a cash call to fund the acquisition as it must keep its D/E ratio below 2x in compliance with long-term loan covenants. However, CPF later denied the above news report that it was in talks to acquire a stake in French-based hypermarket chain Carrefour. Management notes that negotiations are still underway for potential M&A deals and distribution channel will be one of the deciding factors in new investments but the size of the 44 40 36 32 28 24 Oct-11 Figure3: 540 520 500 480 460 440 420 400 380 360 340 320 300 280 260 240 Nov-11 Oct-11 Dec-11 Nov-11 Sources: CPF Dec-11 Jan-12 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Soybean Meal Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jun-12 Jul-12 Jul-12 Aug-12 Aug-12 Sep-12 Sep-12 Oct-12 Oct-12 2 of 9
Thailand Equities Research FYE Dec CY09 CY10 CY11 CY12F CY13F Valuation Ratios P/E (X), adj. 25.0 23.7 19.2 29.0 16.4 P/B (X) 4.3 3.9 3.6 2.8 2.5 EV/EBITDA (X), adj. 24.9 23.0 20.3 18.9 13.1 Dividend Yield (%) 2.1 3.0 3.4 2.9 3.5 Per share data (Bt) EPS, reported 1.52 1.75 2.05 2.79 2.42 EPS, adj. 1.42 1.50 1.84 1.22 2.16 DPS 0.73 1.05 1.20 1.05 1.25 BVPS 8.18 9.07 9.90 12.81 14.07 Growth & Margins (%) Growth Revenue 5.6 14.5 9.0 69.0 10.0 EBITDA 90.4 8.0 13.3 7.8 43.5 EBIT 143.8 13.1 22.5 2.8 45.1 Net Income, adj. 234.8 21.4 23.2-36.8 76.7 Margins EBITDA margin 9.8 9.3 9.6 6.1 8.0 EBIT margin 8.6 8.5 9.6 5.8 7.7 Net Profit Margin 5.9 6.3 7.0 3.1 4.9 Key Ratios ROE (%) 18.6 22.2 19.1 19.5 16.3 ROA (%) 8.4 9.5 7.8 8.3 7.1 Net Debt-Cash 33,320 38,953 45,173 75,835 76,500 Net Gearing(X) 0.6 0.6 0.7 0.6 0.6 Income Statement (Bt mn) Revenue 165,063 189,049 206,099 348,220 382,989 EBITDA 16,206 17,497 19,817 21,360 30,651 Depreciation & Amortisation 4,572 4,723 4,581 6,735 7,408 EBIT 14,235 16,099 19,720 20,280 29,431 Net Finance (Expense)/Income (1,949) (1,824) (2,432) (6,405) (6,248) Other items 1,536 1,409 1,111 1,889 2,078 Associates & JVs 1,592 2,511 3,657 4,023 4,345 Profit Before Tax 12,285 14,276 17,288 13,875 23,183 Taxation 2,539 2,388 2,885 3,122 4,405 Profit After Tax 9,747 11,887 14,403 10,753 18,778 Non-controlling Interest (200) (296) (120) (1,721) (2,817) Net Income, reported 10,190 13,563 15,837 20,626 17,882 Net Income, adj. 9,546 11,592 14,283 9,033 15,962 Source: PSR est. 3 of 9
Thailand Equities Research FYE Dec CY09 CY10 CY11 CY12F CY13F Balance Sheet (Bt mn) Cash 10,523 7,761 24,341 16,161 11,876 ST Investments Accounts Receivables 14,361 15,385 15,692 28,621 31,479 Inventories 26,284 33,863 35,673 44,563 48,180 Others 2,010 1,962 2,721 5,441 5,986 Total current assets 53,434 58,971 78,427 124,623 129,706 PPE 46,422 47,142 52,025 80,364 82,543 Intangibles 884 872 895 487 487 Associates & JVs 11,946 15,446 23,405 24,107 24,830 Investments Others 480 534 577 692 831 Total non-current assets 62,264 67,121 84,005 119,020 122,184 Total Assets 115,698 126,092 160,506 243,643 251,891 Short term loans 16,039 18,139 28,584 53,354 57,265 Accounts Payables 9,106 9,707 11,733 19,806 21,413 Others 2,785 3,108 3,810 3,848 4,618 Total current liabilities 29,637 32,827 46,071 78,972 85,279 Long term loans 27,803 28,575 40,931 38,642 31,111 Others 2,880 3,747 6,428 6,834 7,162 Total liabilities 60,719 65,149 93,430 124,447 123,553 Non-controlling interest 3,095 3,088 2,922 17,530 18,407 Shareholder Equity 51,885 57,856 64,155 101,666 109,931 Cashflow Statements (Bt mn) CFO PBT 10,390 13,859 15,957 22,346 20,698 Adjustments 4,633 4,798 4,739 6,735 7,408 Cash from ops before WC changes 17,672 19,580 21,257 25,416 34,263 WC changes 5,385 (8,124) (793) 5,502 (9,751) Cash generated from ops 25,007 13,279 22,896 37,322 30,759 Taxes paid, net (718) (1,874) (2,906) (2,822) (4,105) Interest paid 1,949 1,824 2,432 6,405 6,248 Cashflow from ops 22,340 9,581 17,558 28,096 20,407 CFI CAPEX, net (4,180) (6,355) (10,315) (37,014) (12,022) Dividends from associates & JVs Dividends/Interest from Investments Purchase/sale of investments (1,133) (3,968) (5,397) (70) (72) Investments in subs & associates Others Cashflow from investments (4,917) (7,995) (14,049) (35,292) (10,136) CFF Share issuance Purchase of treasury shares Loans, net of repayments (5,436) 4,303 23,092 16,365 1,104 Dividends to minority interests Dividends to shareholders & capital reduction (2,285) (6,656) (7,653) (9,857) (8,625) Others Cashflow from financing (10,143) (4,399) 13,022 (312) (14,200) Net change in cash 7,280 (2,812) 16,532 (7,509) (3,929) Effects of exchange rates (154) 51 (294) (323) (355) CCE, end 10,516 7,755 23,993 16,161 11,876 Source: PSR est. 4 of 9
Thailand Equities Research Ratings History 50 40 30 20 10 0 Target Price Market Price Source: Bloomberg, PSR Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 1 2 3 4 5 Phillip Group Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate/Trading Buy 2-5% to +5% Neutral 3-5% to -20% Reduce/Trading Sell 4 >-20% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation 5 of 9
PHILLIP RESEARCH STOCK SELECTION SYSTEMS BUY HOLD SELL >15% upside from the current price Trade within ± 15% from the current price >15% downside from the current price We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation GENERAL DISCLAIMER This publication is prepared by Phillip Securities (Hong Kong) Ltd ( Phillip Securities ). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. This publication shall not be reproduced in whole or in part, distributed or published by you for any purpose. Phillip Securities shall not be liable for any direct or consequential loss arising from any use of material contained in this publication. The information contained in this publication has been obtained from public sources which Phillip Securities has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the Research ) contained in this publication are based on such information and are expressions of belief only. Phillip Securities has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this publication is subject to change, and Phillip Securities shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will Phillip Securities be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this material are as of the date indicated and are subject to change at any time without prior notice. This material is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this material may not be suitable for all investors and a person receiving or reading this material should seek advice from a financial adviser regarding the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products. This publication should not be relied upon as authoritative without further being subject to the recipient s own independent verification and exercise of judgment. The fact that this publication has been made available constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described in this material is suitable or appropriate for the recipient. Recipients should be aware that many of the products which may be described in this publication involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks. Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in this research should take into account existing public information, including any registered prospectus in respect of such security. Disclosure of Interest Analyst Disclosure: Neither the analyst(s) preparing this report nor his associate has any financial interest in or serves as an officer of the listed corporation covered in this report. Firm s Disclosure: Phillip Securities does not have any investment banking relationship with the listed corporation covered in this report nor any financial interest of 1% or more of the market capitalization in the listed corporation. In addition, no executive staff of Phillip Securities serves as an officer of the listed corporation.
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