CPF and the Business Plan of Killing a Sounder of Swine with One Stone

The acquisition of HyLife and the stepping down from the position of Mr. Dhanin Chearavanont could help CPF’s share to make another run.

The investment of THB 11,845 million that Charoen Pokphand Foods Public Company Limited (CPF) poured to takeover HyLife Investments Ltd. (HIL), a leading integrated pork producer in Canada, was a huge step for the company to expand to international markets.

 

HyLife’s integrated business includes the production of animal feed, pig farm, processing plants, logistics, and distributing of any pork-related products.

Strategically, this deal would increase CPF’s revenue greatly.

 

The acquisition of HIL is expected to generate the following benefits to CPF:
1) Gaining an advantage from lower cost as HyLife has one processing plant in Canada and two plants in Mexico. CPF would have higher margin this way when the company can transport its products directly from the plants instead of Thailand or Vietnam.
2) Giving future opportunity to expand in the North American region.
3) Penetrating into premium markets in strategic countries such as Japan.
4) Acquiring the technology of producing premium pork with net profit margin as high as 10%, compared to the one from CPF at 3%.

 

Analysts estimate that the acquisition would increase CPF’s profit sharing by approximately THB 900 million per year, compared to the purchase price at THB 11,845 million, its PER is considerably not too expensive at 13x. Moreover, the deal is expected to start recognizing revenue and profit within this year.

Just like the proverb “Killing a sounder of swine with one stone

 

The deal would strengthen CPF’s fundamental, but the share price of CPF does not seem to have a positive response from the news as much as it should. The price was moving around ฿25-26.00/share for the past few days.

Is it because the investors are being cautious on the upcoming financial statement? Last year CPF faced a higher cost after the price of chicken and pork plunged, especially in Vietnam.

 

Due to this reason as the main factor, CPF’s profit in 2018 financial statement was recorded at THB 15,531.47 million from THB 567,820.21 million in revenue, increased slightly from the profit of THB 15,259.32 million and THB 523,179.98 million in revenue in 2017.

A lower performance when it should have been better.

 

CPF’s 1Q19 financial statement could be better as the price of meat had increased while having lower cost. Its normal profit is expected to be THB 2,450 million.

 

The resignation of Mr. Dhanin Chearavanont from the position of Chairman of the Board may not have any significant meaning behind it asides from restructuring business management and giving an opportunity to the younger generation to have a greater role in the company.

The acquisition and the stepping down from the position of Mr. Dhanin Chearavanont could help CPF’s share to make another run.

 

Thus said, CPF is considered a popular share in the market and always in the radar of institutions, foreign funds and individuals.