THAILAND EQUITY RESEARCH

Agri - Food Sector Overweight

28 March 2017
(Maintain)

Japan, South Korea and Malaysia matter for Thailand this year,
not Brazil
Event
According to the latest information, there was news that a number of countries had lifted
their ban on imports of Brazilian meats. They included China, Hong Kong, Chile and Egypt.
Such move came after Brazil had informed them of their investigation on the exporting
factories of the expired products. The European Union (EU) will later send a delegation to
meet and verify it with the Brazilian government. Note China, Hong Kong, the EU, Chile,
Egypt, Mexico, Canada, Switzerland and Japan had earlier imposed temporary suspension on
imports of Brazilian frozen meats after it was found that major meat manufacturers in Brazil
had managed to export expired products through bribery of related authorities.
Thailand sees limited positive impact from Brazil’s meats scandal
Given the development, buyers that have earlier suspended their purchases might be able to
quickly resume their imports of Brazilian frozen meats. This is different from the bird flu
incident which takes time to get rid of the disease, increase farming, and invite importers to
do site visit in order to verify safety and restore confidence. Normally, this will take a period
of six months on average. If Brazil is unable to quickly restore confidence, although it is
positive for the Thai chicken industry, impact will be limited due to the followings.
1) The Brazilian chicken industry has huge market. Specifically, the country is the world's
second largest chicken producer with 13.6mn tons capacity (after the U.S.). Although it
comes second in terms of production, the country's chicken exports rank first at 4.1mn
tons, which is equal to 38% of the world's export volume. Meanwhile, Thailand exports
only about 700,000 tons of chicken products annually, which represents roughly 6% of the
world's export volume. Moreover, our capacity is nearly ful, while our farmers are able to
raise their capacity by just 5%-10% each year. As a result, Thailand is able to replace just
a small portion of what Brazil will miss.
2) Thailand and Brazil offer different products. Although the South American producer has
lower farming cost than us, the country's focus is mainly on frozen chicken (as the U.S.),
while Thai exporters sell mostly processed chicken with wider margin. In Europe,
Thailand is under a quota, which is nearly full at the moment. Hence, the country should
not benefit much. China is not a market for Thailand. Beijing imports mostly frozen
chicken and is price sensitive. As a result, the replacement should come from the U.S.
Japan, South Korea and Malaysia serve as key driver for Thailand this year
This year, the factor that will support growth for Thailand's chicken exports is increased
demand from Japan, South Korea, Malaysia and other Asian countries (except China). Both
Japan and South Korea faced bird flu problem earlier. Moreover, Seoul has recently lifted its
ban on Thai frozen chicken, helping Thai chicken export volume to pick up since 4Q16. As a
result, we maintain our bullish view on the chicken price outlook that it will remain strong
or increase to Bt38-40 per kg. this year.
Profit set to be dull in 1Q17 and improve in following quarter
In 1Q17, our forecast calls for the chicken sector's aggregate normalized earnings to
decrease both Q-Q and Y-Y. However, GFPT and TFG will continue to grow Y-Y thanks to the
low base last year. The Q-Q decrease is likely to be attributed to a number of reasons. First,
it is the export industry's low season. Second, some of export revenues were moved in to be
realized in 4Q16. Third, CPF is hit by negative impact from the decline in pig price. In Analyst: Sureeporn Teewasuwet
addition, its business in China and Vietnam slows due to their high base and seasonal factor. Register No.: 040694
Although the different accounting standard between Thailand and the U.S. will make it
Tel.: +662 646 9972
possible for CPF to book profit from Bellisio, we expect large one-time acquisition expense.
In 2Q17, we anticipate their aggregate normalized earnings to increase Q-Q thanks to the email: sureeporn.t@fnsyrus.com
chicken industry's export season.
Web site: www.fnsyrus.com
Prices have rallied to where most of them now imply limited upside
Of this space, we only rate BUY on CPF (2017 TP Bt38) because its share price lags the most
and, hence, has the largest upside. Moreover, we recommend that investors hold GFPT (2017
TP Bt18.3) after the counter has increased to where it now implies limited upside. Finally,
we recommend TFG (2017 TP Bt5.3) as a SELL because the stock is fully valued.

Stock Rating Price (Bt) End-17 Norm Growth (%) Norm P/E(x) P/BV(x) Dividend yield (%) Norm ROE (%)

27-Mar-17 target 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E 2017E 2018E
CPF BUY 29.25 38.0 2.0 7.1 15.5 14.5 1.6 1.6 3.4 4.0 10.6 10.8
GFPT HOLD 18.0 18.3 2.5 11.4 13.8 12.4 2.1 1.9 1.8 2.4 13.8 13.9
TFG SELL 6.85 5.3 33.2 25.2 18.0 14.3 5.3 4.3 2.2 2.4 26.7 26.9
Sector Mean 4.6 9.4 15.8 13.8 3.0 2.6 2.5 2.9 17.0 17.2
Source: FSS Estimates

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 Finansia Syrus Securities Public Company Limited
Head Office Thaisummit Tower Alma Link Amarin Tower Central Pinklao 1
999/9 The offices at Central World 1768 Thaisammit Tower Building, 9th, 14th, 15th Fl., 496-502 Amarin Tower 7/129-221 Central Pinklao Office
18th, 25th Fl., 5th, 31th Fl., New Petchburi Road, Alma Link Building 25 20th Floor, Pleonchit, Building, Room 1404, 14th Fl.,
Rama 1 Rd., Patumwan, Bangkapi, Huaykwang, Soi Chidlom, Ploenchit, Lumpini, Lumpini, Pathumwan, Baromratchonnanee Road,
Bangkok Bangkok Patumwan, Bangkok Bangkok Arunamarin, Bangkoknoi, Bangkok

Bangkapi Bangna Sindhorn 1 Kian Gwan (Sindhorn 2) Sindhorn 3

3105 N Mark Building, 3rd Floor, 1093 Tower 1 Office, 19th Floor, 130-132 Sindhorn Building 1, 140/1 Kian Gwan House II 130-132 Sindhorn Building 3,
Room A3 R02, Ladprao Road, Room 1093/105 Moo 12, 2rd Floor, Wireless Road, 18th Floor, Wireless Road, 19th Floor, Wireless Road,
Klongjan, Bangkapi, Bangkok Bangna-Trad Road, Bangna, Lumpini, Pathumwan, Lumpini, Pathumwan, Lumpini, Pathumwan,
Bangkok Bangkok Bangkok Bangkok

Ladprao Prachachuen Rang sit Thaisummit Tower Rattanatibet

555 Rasa Tower 2, 11st Floor, 105/1 B Building, 4th Floor, 1/832 Phaholyothin 60 1768 Thaisammit Tower Building, 68/127 Moo 8 Rattanatibet Road,
Unit 1106, Phaholyothin Road, Thessabansongkhrao Road, Kukod, Lumlookka 2nd Floor, New Petchburi Road Tumbon Banggrasor,
Chatuchak, Bangkok Ladyao, Jutujak, Bangkok Pratumtanee Bangkapi, Huaykwang, Aumphoe Muang,
Bangkok Nonthaburi

Sriracha Khonkaen 1 Khonkaen 3 Udonthani Chiangmai 1

135/99 (G fl.) Sukumvit Road, 311/16 2nd Floor, Klangmeung 311/1 104/6, 2 fl., ICBC Bank Tower 308 Chiang Mai Land,
Tumbon Sriracha Road, Tumbon Nai Meung, Khang Meung Road, Udon Dusadee Road, Chang Klan R., Chang Klan
Aumphoe Sriracha, Chonburi Aumphoe Meung, Tumbon Nai Meung, Tumbon Mak Khaeng, Muang
Khonkaen Aumphoe Meung Khonkaen, Aumphoe Muang Udon Thani, Chiangmai
Khonkaen Udon Thani

Chiangmai 2 Chiangmai 3 Chiangrai Measai Nakornratchasima

310 Chiang Mai Land, Maliplace Building 32/4 moo 2 353/15 Moo 4, 119 Moo 10, 1242/2 A3 room, 7 fl.,
Chang Klan R., Chang Klan 1 fll., B1-1, B1-2 room Tumbon Rimkok Tumbon Maesai, The Mall Ratchasima
Muang Tumbon Maehia Aumphoe Muang, Cheangrai Aumphoe Muang, Cheangrai Mittraphap rood Tumbon Nai Muang
Chiangmai Chiangmai Aumphoe Muang Nakornratchasima
Nakornratchasima

Samutsakorn Nakornpathom Phuket Hatyai 1 Hatyai 2

1045/16-17 Vichienchodok, 28/16-17 Yingpao Road, 22/18 Vanish Plaza Shopping 200/222, 200/224, 200/226 106 Prachathipat Road,
Tumbon Mhachai, Aumphoe Tumbon Sanamjan, Mall, Luangporwatchalong Road, Juldis Hadyai Plaza, 2rd Floor, Aumphoe Hadyai, Songkhla
Meungsamutsakorn, Samutsakorn Aumphoe Muang, Nakornpathom Tumbon Talad Yai, Building, Niphat Uthit 3 Road,
Aumphoe Hadyai, Songkhla

Hatyai 3 Krabi Trang Suratthani Pattane

200/222, 200/224, 200/226 223/20 Mharaj Road, 59/28 Huaiyod Road, 173/83-84 Moo 1 300/69-70 Moo 4,
Juldis Hadyai Plaza, 2rd Floor, Tumbon Paknam, Tumbon Thaptieng, Watpho-Bangyai Road., Tumbon Rusamirae,
Building, Niphat Uthit 3 Road, Aumphoe Meung, Krabi Aumphoe Meungtrang, Trang Tumbon Makamtia, Aumphoe Meung, Pattane
Aumphoe Hadyai, Songkhla Aumphoe Mueang, Suratthani

Recommendation Definitions
BUY The latest close is below our target price and the estimated upside is 10% or more.
HOLD The latest close is below our target price and the estimated upside is 0-10%.
SELL The latest close is above our target price.
TRADING BUY The latest close is above our target price but the price is expected to be driven by short-term positive factors
OVERWEIGHT The estimated return is higher than the market average.
NEUTRAL The estimated return is the same as the market average.
UNDERWEIGHT The estimated return is lower than the market average
Note: The expected return may change as market risks increase or decline.

DISCLAIMER: This report has been prepared by Finansia Syrus Securities Public Company Limited (FSS). The information herein has been obtained from
sources believed to be reliable and accurate; however FSS makes no representation as to the accuracy and completeness of such information. Information
and opinions expressed herein are subject to change without notice. FSS has no intention to solicit investors to buy or sell any security in this report. In
addition, FSS does not guarantee returns nor price of the securities described in the report nor accept any liability for any loss or damage of any kind
arising out of the use of such information or opinions in this report. Investors should study this report carefully in making investment decisions. All rights
are reserved.

This report may not be reproduced, distributed or published by any person in any manner for any purpose without permission of FSS. Investment in
securities has risks. Investors are advised to consider carefully before making investment decisions.

Finansia Syrus Securities Public Company Limited may act as market maker and issuer of DWs. The company may prepare the research reports on those
underlying securities. Investors should carefully read the details of the derivative warrants in the prospectus before making investment decisions.

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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2016

Sc ore Range Rating Desc ription

100-90 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 no logo given n/a

IOD (IOD Disclaimer)

The Corporate Governance Report (CGR) of Thai listed Companies is based on a survey and assessment of information which companies listed on the Stock
Exchange of Thailand and the Market for Alternative Investment (“listed companies”) disclose to the public. The CGR is a presentation of information
from the perspective of outsiders on the standards of corporate governance of listed companies. It is not any assessment of the actual practices of the
listed companies, and the CGR does not use any non-public information. The CGR is not therefore an endorsement of the practices of the listed companies.
It is not a recommendation for investment in any securities of any listed companies or any recommendation whatsoever. Investors should exercise their
own judgment to analyze and consider any information relating to the listed companies presented in this CGR report. No representation or warranty is
made by the Institute of Directors or any of its personnel as to the completeness or accuracy of the CGR report or the information used.

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Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
1 CG Score 2016 from Thai Institute of Directors Association (IOD)

2 Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors

(as of October 28, 2016) are categorised into:

- companies that have declared their intention to join CAC, and

- companies certified by CAC.

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