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GFPT
GFPT TB / GFPT.BK March 25, 2019
Sector: Agro&Food NEUTRAL
Weak El Niño strengthens chicken Rating: TRADING BUY
Target Price: Bt16.25
price Price (March 22, 2019): Bt13.60
Strong domestic live chicken prices, led by the “weak El Niño” Price chart
conditions and post-election consumption rebound along with Bt Price (LHS) Rel. to SET (RHS) Rel. Idx
expected dip in soybean meal costs are key drivers for GM 16 150
101
expansion this year. GFN turnaround and McKey’s increased profit 14 100
will fatten its 2019 profit further. Scope for upside will come from 12 50
greater-than-expected chicken export volume to China this year. 10 0
Our TRADING BUY stands, premised on a 2019 earnings jump. 03/18 05/18 07/18 09/18 11/18 01/19 03/19
Share price perf. (%) 1M 3M 12M
Sustained chicken price strength under “weak El Niño” Relative to SET (4.8) (9.0) 12.1
Absolute (5.6) (5.6) 3.8
With an upgraded “weak El Niño” probability—up 24 percentage points
(ppt) from 56% to 80% during Mar-May—we then anticipate hotter-than-
Key statistics
average weather in Thailand in Mar-May 2019. This should lead to
Market cap Bt17.1bn USD0.5bn
greater-than-average damage to chicken supply resulting from 12-mth price range Bt11.2/Bt15.6
widespread diseases in chickens (such as cholera) and chicken yield 12-mth avg daily volume Bt46m USD1.4m
and weight losses (chickens eat less during hot weather). Besides # of shares (m) 1,254
Est. free float (%) 50.2
hotter-than-average weather, sustained high Thai pork (the substitute Foreign limit (%) 49.0
meat) price and livestock meat consumption rebound after the general
election are also key positive factors underpinning chicken prices. We Consensus BLS target price Consensus
assume Bt35/kg average for live chicken price for 2019, or up 7% YoY. rating vs. Consensus rating
% Bt Btm BLS Cons.
100 16.4 1700
Improved domestic byproduct prices YTD 80 16.4 1600
60 88 Buy 16.3
Prices for domestic chicken byproducts rose in 1Q19 in tandem with a 40 16.3
1500
1400
6% rise in domestic live chicken prices (to Bt34.5/kg in mid-Feb). We 20 Hold 16.2
0 12
0 16.2 1300
expect the average domestic sales price of chicken bone—a key 1
Sell BLS
BLS Cons.
Cons.
19E 20E
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Company profile
GFPT Plc (GFPT) is an integrated poultry operator. It runs chicken slaughtering and processing operations with output that includes chicken meat and
cooked chicken products. The firm also has seven subsidiaries that operate feed mills, a broiler-raising farm, a breeder-raising farm, a rearing breeder
farm and processed food businesses. In 2017, chicken meat and food represented 45% of consolidated sales, followed by animal feed sales from
Krungthai Feedmill Plc (KT) (20%). About 25% of GFPT’s chicken meat is sold domestically; the remainder is exported directly (53%) or indirectly
(22%).
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Outlook
Sustained chicken price strength under “weak El Niño”: With an upgraded “weak El Niño”
probability—up 24 percentage points (ppt) from 56% to 80% during Mar-May and up 12ppt
from 38% to 50% during Sep-Nov—we anticipate hotter-than-average weather in Thailand
during Mar-May 2019. In effect, it will lead to greater-than-average damage to chicken supply
resulting from widespread diseases in live chickens (such as cholera) and chicken yield and
weight losses (chickens tend to eat less during hot weather).
Besides hotter-than-average temperatures during this summer, other key positive factors
underpinning the higher live chicken price level through 2Q19 are: 1) the sustained high Thai
pork price (pork is a substitute meat for chicken) caused by tighter supply and 2) a recovery of
meat consumption after the Mar 24 general election (from a boost in consumers’ confidence).
The domestic live chicken price has been sustained at Bt34.50/kg since Feb 18, 2019 until
now. It was at Bt32.50/kg since late-Sept 2018 before rising 6% to Bt34.50/kg in mid-Feb 2019.
We conservatively assume Bt35/kg average live chicken price for 2019, or up 7% YoY. We
assume that the price is likely to stay at Bt35-36/kg throughout 2H19. Scope for domestic
chicken price upside in 2019 will come from faster-than-expected meat consumption rebound in
2H19 and greater byproduct export volume to China in 2019.
Improved domestic byproduct prices YTD: The prices on chicken byproducts have risen in
1Q19 in tandem with a modest 6% rise in domestic live chicken prices (to Bt34.5/kg in mid-
Feb). We expect the average domestic sales price of chicken bone—one of the key chicken
byproducts—to rise to Bt10-11/kg in 1Q19 (up from Bt8/kg in 4Q18 and the average price of
Bt7-8/kg in 2018). We continue to expect the strengthening of domestic byproduct prices to
continue into 2Q19, thanks to the aforementioned reasons, and assume an average chicken
bone price of Bt11/kg for 2019. Note that the domestic chicken bone price used to hit a low of
Bt3-4/kg when domestic chicken oversupply took place in the past years.
Upside scope for 2019 industry-wide chicken export volume target: The Thai Broiler
Processing Exporters Association targets 900k tonnes of Thai chicken export volume in 2019,
up 0.8% YoY from 890k tonnes in 2018 (and against 11.1% YoY rise in 2018). We believe that
this 2019 target is far too conservative, given: 1) full-year byproduct export sales volume to
China starting 2Q18 or 3Q18 (up 122%; from 18k in 2018 to 40k tonnes in 2019); 2) higher
chicken export sales volume to South Korea (up 33% from 30k to 40k tonnes in 2019) and 3)
nd
the potentially additional export volume to China from the 2 round of factory inspection, which
could probably be in 4Q19 at the earliest or in 2020. We forecast 917k tonnes of Thai chicken
export volume for 2019, or up 3% YoY, mainly underpinned by full-year byproduct (chicken
claw) sales to China, of which we have taken into account the effect of stronger THB/USD.
Figure 1: Domestic chicken price, daily Figure 2: Thailand’s chicken meat export volume
9/2/2009
2/8/2014
6/9/2015
2/6/2018
19/7/2008
28/8/2009
16/3/2010
2/10/2010
20/4/2011
6/11/2011
24/5/2012
10/12/2012
28/6/2013
14/1/2014
18/2/2015
24/3/2016
10/10/2016
28/4/2017
14/11/2017
19/12/2018
2019F
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Sources: Department of Internal Trade and Office of Agricultural Economics Sources: Thai Broiler Processing Exporters Association, Bualuang Research
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Scope for an upside to GFPT’s export volume to China in 2019: GFPT’s chicken export
volume totaled 32.7k tonnes in 2018, up 7% from 30.6k tonnes in 2017, led by higher exports
to the EU (up 26% YoY to 11.2k tonnes in 2018) and China (up 75% YoY to 2.8k tonnes in
2018). Note that GFPT’s total export volumes in 2018 were broken down into Japan (15.9k
tonnes; 49% of its total export volume), followed by EU (11.2k tonnes; 34% of total), China
(2.8k tonnes; 9% of total) and others including Malaysia (2.8k tonnes; 8% of total). Its total
4Q18 export volume of 8.9k tonnes was broken down into Japan (47%), EU (27%), China
(18%), Malaysia and others (8%).
We assume that GFPT’s export volume will rise a further 8% (to 35.3k tonnes) in 2019, driven
by the China market. We estimate that its export volume to China in 2019 will jump 79% (from
2,800 tonnes to 5,000 tonnes), assuming a full-year export to China in 2019 based on GFPT’s
average monthly export volume to China of 420 tonnes. Note that GFPT started exporting
chicken claws and wings to China in 2Q18—400-500 tonnes in 2Q18, 700-800 tonnes in 3Q18
and 1,500-1,600 tonnes in 4Q18. Because its export volume to China jumped by 100% QoQ to
1,500-1,600 tonnes in 4Q18, we believe that its export volume to China in 2019 is likely to
exceed our assumption of 5,000 tonnes (a likelier scenario is 6,000-7,000 tonnes). We treat
this as an upside to our 2019 export volume assumption. Moreover, we expect the GM for
chicken claw export to China to be higher than its domestic sales, given that the average sale
prices of chicken claws are about 40% higher than those sold domestically.
Return to black ink for GFN in 2019: GFPT Nichirei (Thailand) Co, Ltd (or “GFN”), a JV
between GFPT (49%) and Nichirei Food Inc (51%), posted a Bt154m net loss in 2018, against
Bt214m net profit in 2017, due to the loss-making domestic byproducts (lower domestic
byproduct sales price from chicken oversupply in 1H18). GFN made a Bt111m net loss in 1Q18
and Bt96m net loss in 2Q18 before swinging back to a Bt47m net profit in 3Q18 and a slight
Bt4m net profit in 4Q18. With the YoY higher average byproduct prices (Bt11-12/kg versus Bt7-
8/kg) in 2019 pegged with the YoY higher average domestic chicken price (Bt35/kg versus
Bt32.6/kg), we assume that GFN is likely to post black ink of Bt80m in 2019, or a YoY
turnaround. Although GFN is likely to post a red ink in 1Q19 due to its low season of export, we
expect black ink for the remainder of the year.
Figure 3: GFN’s revenue and bottom line, quarterly Figure 4: McKey’s revenue and bottom line, quarterly
(Btm) GFN's revenue (Btm) (Btm) (Btm)
McKey's revenue
GFN's net profit (loss) 1,800 1,699 250
2,500 2,068 200 McKey's net profit (loss)
1,840 1,916 1,638
1,916 2,136 1,600
1,956
118 1,750 1,944 1,878 2,079 2,039 150 1,344 1,402
2,000 162 1,884 1,851 1,940 1,860 1,400 1,162
191 1,312 200
1,776 102 1,223
1,697 100 1,162 1,228
1,524 1,137 1,163
109 102 118 1,200 1,086 1,153
105 47 1,040
1,500 39 1,066 150
1,503 81 50 1,000 942 943968918 941 123 133
1,647 57 116
51 7 111
(25) 36 38 128
- 800 102
1,000 120 100
(26) 4
88 104
600 61
(50) 55
(111) 51 50 53 86
500 44 46
400 50
(100)
24
(96) 200
- (150) 31
- -
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
Higher McKey profit in 2019: McKey Food Services (Thailand) Ltd (or “McKey”), a JV
between GFPT (49%) and Keystone Foods Inc (51%), delivered a Bt290m net profit in 2018,
down 17% YoY from Bt351m net profit in 2017, due to higher operating costs from its new
additional processing plant (including depreciation expense) which commenced its operations
in late-2017 and the new processing plant run-rate of 60-70% dring 1H18 which was below its
breakeven point. We assume that McKey’s combined average utilization of Its two processing
plants will ramp up from 50-60% in 2018 to 70-80% in 2019. We estimate a Bt435m in McKey’s
net profit in 2019, up 50% YoY, fueled by greater capacity utilization rate of its new processing
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plant, higher export volume and the focus on higher value-added high-margin products. Note
than McKey made net profits of Bt24m in 1Q18, Bt46m in 2Q18, Bt116m in 3Q18 and Bt104m
in 4Q18. McKey’s export volume will rise 15% YoY in 2019 (from 45k tonnes to 52k tonnes).
Lower soybean meal and stable corn costs: The domestic corn price has recently dropped
to Bt9/kg on Mar 22, 2019 (from Bt10.2/kg during early-Jan 2019), thanks to the harvest of the
late-rainy season crop, starting Feb onward. Overall, we assume that domestic corn price will
be Bt10/kg in 2019, up 2% YoY. The premium-grade domestic soybean meal (SBM) price has
also plummeted to Bt13/kg in Feb 2019 (from its peak of Bt15.3/kg in Jun 2018) before
bouncing back slightly to Bt13.5/kg in Mar 2019. We reiterate our view that the global soybean
price is likely to be at US$9-9.5/bushel in 2H19, thanks to the abundant output from South
America (in a “weak El Niño” condition). We assume that domestic soybean meal price will be
Bt14.4/kg in 2019 (down 10% YoY from Bt16.1/kg average for 2018). In light of stable corn and
lower SBM costs, along with the improved domestic live chicken (and byproduct) prices, we
then expect fatter livestock GM in 2019.
Risks
Return to chicken oversupply: If major chicken operators start ramping up production in
2019, it might lead to excess chicken supply and a further slide in domestic chicken prices (to
below Bt30/kg) and GFPT chicken byproduct prices. We don’t think that an oversupply situation
will take place in 2019, given that major chicken operators have their own export markets to
absorb the increasing capacity expansion and the rebound of meat consumption after the
general election will absorb excess supply.
Spike in domestic corn price caused by more severe dryness in 1H19: We still have not
witnessed any impact of the weak El Niño condition on domestic corn prices during Jan-Mar
2019. However, if the impact of weak El Niño intensifies into Apr-Jun which might impact the
early rainy season corn crop, it might boost the domestic corn price in 2Q19.
Stronger THB against USD: We believe that its business is naturally hedged though its dollar
and other-currency denominated revenue and cost structure, which mitigates the worst of the
impacts of a strengthening baht. Currently, its export sales represent about 25% of total sales
(24% in USD and 1% in EUR) and its domestic sales the remainder. For cost structure, its raw
material costs represent 70-80% of total cost of sales, with 20-25% being exposed to USD
linked with soybean or SBM imports.
Increased labor costs in 2020: The political campaigns of various political parties to lift the
daily minimum wage from Bt300 to Bt400 has put all food operators with large factory
workforces at risk of paying higher wages to workers. If it happens, we expect the negative
impact to be felt in 2020. However, the incremental cost pass-on to higher product prices
remains to be seen.
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Regional Comparisons
Bloomberg Price Market Cap PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%)
(US$
Code (local curr.) equivalent) 2019E 2020E 2019E 2020E 2019E 2020E 2019E 2020E 2019E 2020E
Brf - Brasil Foods Sa BRFS3 BZ BRL22.2 4,640 n.a. 39.8 -191.7 -692.1 2.0 1.9 -0.1 4.7 0.3 0.8
Jbs Sa JBSS3 BZ BRL14.3 10,032 29.0 8.1 856.9 208.1 1.5 1.3 7.0 15.7 1.9 4.5
Marfrig Alimentos Sa MRFG3 BZ BRL5.7 914 13.3 13.4 -69.7 -12.5 1.7 1.6 63.6 2.0 1.3 3.1
Minerva Sa BEEF3 BZ BRL7.0 674 6.5 6.3 37.7 28.0 3.9 2.6 72.3 26.9 0.0 2.3
Tyson Foods Inc-Cl A TSN US USD66.6 24,330 11.3 10.6 -28.7 6.2 1.7 1.6 15.8 15.2 2.4 2.6
Pilgrim'S Pride Corp PPC US USD21.5 5,340 13.6 11.4 58.0 18.8 2.6 2.4 20.5 28.4 0.0 7.6
Sanderson Farms Inc SAFM US USD127.3 2,820 57.7 42.9 -18.3 34.6 2.0 1.9 6.0 6.0 1.0 1.0
Maple Leaf Foods Inc MFI CN CAD29.9 2,768 19.2 16.6 74.1 11.3 1.7 1.6 8.6 9.3 1.7 n.a.
Astral Foods Ltd ARL SJ ZAR15,568.0 461 7.5 6.7 -44.4 11.7 1.5 1.3 20.1 19.8 7.2 7.7
Nippon Meat Packers Inc 2282 JT JPY4,015.0 3,922 20.6 17.0 n.a. 20.8 1.0 1.0 5.5 5.8 2.2 2.2
Mhp Sa -Gdr Reg S MHPC LI USD11.2 1,191 6.8 4.9 69.3 20.0 n.a. n.a. 15.4 23.4 6.7 6.7
Henan Shuanghui Investment-A 000895 CH CNY25.8 12,662 16.4 15.4 5.7 6.2 5.6 5.3 33.3 32.5 5.5 5.8
Bangkok Ranch BR TB THB3.94 113 14.0 12.4 -65.5 34.7 0.8 0.7 5.5 6.0 3.8 4.3
Charoen Pokphand Foods CPF TB THB26.25 7,118 13.3 11.7 1.8 5.2 0.9 0.9 9.6 10.2 2.6 3.0
GFPT GFPT TB THB13.60 537 11.4 10.6 -37.6 44.5 1.2 1.1 11.4 11.3 2.7 2.8
Thaifoods Group TFG TB THB3.04 496 17.0 14.2 -62.5 69.8 1.9 1.7 13.5 15.0 3.5 4.2
Simple average 17.2 15.1 39.0 -11.5 2.0 1.8 19.3 14.5 2.7 3.9
PER band versus SD (next 12 months) PBV band versus SD (next 12 months)
x x
+3.0 SD = 26.65x
+3.0 SD = 2.98x
25 3.1
+2.0 SD = 20.52x 2.6 +2.0 SD = 2.39x
20
0 0.1
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 YE17 YE19 YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 YE17 YE19
PER band and share price PBV band and share price
Bt/share Bt/share
40
25 3.0x
16x 35
20 30 2.5x
13x
25 2.0x
15 10x
20 1.5x
10 7x 15 1.0x
4x 10
5 0.5x
5
1x
0 0
YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 YE17 YE19 YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 YE17 YE19
5
0
8/18 9/18 10/18 11/18 12/18 1/19
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BUALUANG SECURITIES PUBLIC COMPANY LIMITED (BLS) is a subsidiary of BANGKOK BANK PUBLIC COMPANY LIMITED (BBL). This document
is produced based upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. The statements or
expressions of opinion herein were arrived at after due and careful consideration to use as information for investment. Expressions of opinion contained
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responsibility is accepted for any loss occasioned by reliance placed upon the contents hereof. Bualuang Securities Public Company Limited may from
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otherwise being interested in, any securities mentioned herein, This report does not constitute a solicitation to buy or sell any securities”. Investors
should carefully read details in the prospectus before making investment decision.
BUALUANG SECURITIES PUBLIC COMPANY LIMITED MAY ACT AS MARKET MAKER AND ISSUER OF DWs, AND ISSUER OF STRUCTURED
NOTES ON THESE SECURITIES. The company may prepare the research reports on those underlying securities. Investors should carefully read the
details of the derivative warrants and structured notes in the prospectus before making investment decisions.
Lead underwriter/
Financial Advisor Underwriter/
Co-underwriter
CG Rating
Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
under Thai Institute of Directors
• companies that have declared their intention to join CAC, and
• companies certified by CAC.
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This research report was prepared by Bualuang Securities Public Company Limited and refers to research prepared by Morgan Stanley. Morgan Stanley
does not warrant or guarantee the accuracy or completeness of its research reports. Morgan Stanley reserves copyright and other proprietary rights in
the material reproduced in this report. Morgan Stanley is under no obligation to inform Bualuang Securities or you if the views or information referred to
or reproduced in this research report change.
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relevant institution as disclosed by the Office of the Securities and Exchange Commission, is made in order to comply with the policy and sustainable
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stipulated in the form for the assessment of Anti-corruption, which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2),
or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of a third party. It is not an
assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the
assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, Bualuang Securities Public
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BUY: Expected positive total returns of 15% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
months. expected to outperform the relevant primary market index over the next 12 months.
HOLD: Expected total returns of between -15% and +15% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, is
months. SELL: Expected negative total returns of 15% or more over the next expected to perform in line with the relevant primary market index over the next 12
12 months. TRADING BUY: Expected positive total returns of 15% or more months.
over the next 3 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is
expected to underperform the relevant primary market index over the next 12
months.
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