Krungsri Securities (KSS) has made analytic reviews on CPF and GFPT giving the reason for the improvement of domestic chicken prices will drive earnings growth of CPF and GFPT in 2H19.
In the statement, KSS stated that the domestic broiler prices have improved due to more balanced demand and supply following rising export demand for broilers and chicken products. Domestic broiler prices averaged ฿37.00 per kg in July, 4% higher than 2Q19 average of Bt35.67. This led 7M19 average to rise 10% YoY to ฿35.14, higher than the company’s breeding cost of ฿33-34 per kg.
KSS recommended “BUY” Charoen Pokphand Foods Public Company Limited (CPF)’s share with the target price of ฿33.50/share based on 16.0x FY20F core EPS. KSS stated that CPF will make a strong recovery in 2019 and earnings would continue to grow in 2020. This would be driven by higher demand for broilers due to meat substitute for pork in China, and to meet demand during the 2020 Olympic Games.
The ASF outbreak in China would have a mild impact on CPF although the culling of a large farmed swine population would reduce demand for swine feed. However, higher demand for poultry and aquaculture feed might partially offset this. KSS expected global production of CPF to drop 4% in 2019 driven by a sharp reduction in China output. As ASF continues to spread in China, prices are rising, indicating tight supply. This has resulted in severe economic losses in the swine industry but may lead to higher demand for poultry, especially broilers.
ASF outbreak in China has limited impact on CPF. As a result of CPF does not operate any swine farm in China, so there is no direct impact. The poultry farm in China would benefit indirectly, as the chicken is a popular substitute for pork. Moreover, the culling of pigs would reduce demand for swine feed but the impact may be partially offset by higher demand for poultry and aquaculture feed.
KSS recommended “BUY” GFPT Public Company Limited (GFPT) share with the target price of ฿21.00/share based on 16.0x FY20F PE of its long-term average multiple. It implies 16.7% upside from the last closing price at ฿18.00/share. KSS stated that GFPT is a winner amid the ASF outbreak in China. GFPT earnings will continue to grow through to 2020 driven by higher demand for broiler due to chicken meat is a popular substitute for pork in China, and to meet demand during the 2020 Olympics.
GFPT would be able to raise the prices of their chicken products to mitigate fluctuations in feed costs. And, there is minimal foreign exchange risk.
KSS said that GFPT can raise selling prices to mitigate fluctuation risks in feed costs. If corn and soybean meal prices rise, GFPT can revise up chicken meat prices to offset the incremental costs. Now, pork prices in China have jumped by almost 40% to CNY29.20 per kg, from ฿20.80 at end-2018. KSS expected chicken meat price in China to follow pork prices, and pull up global prices.