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RESEARCH UPDATE

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

chicken byproduct—to rise to Bt10-11/kg in 1Q19 (up from Bt8/kg in


4Q18 and the average price of Bt7-8/kg in 2018) and expect the further
Financial summary
strengthening of domestic byproduct prices to continue into 2Q19. We
FY Ended 31 Dec 2018 2019E 2020E 2021E
assume an average chicken bone price of Bt11/kg for 2019. Revenues (Btm) 16,647 17,438 17,898 18,289
Net profit (Btm) 1,038 1,500 1,606 1,715
Upside scope for GFPT’s export volume to China in 2019
EPS (Bt) 0.83 1.20 1.28 1.37
We assume that GFPT’s export volume will jump by 8% (to 35.3k EPS growth (%) -37.6% +44.5% +7.1% +6.8%
tonnes) in 2019, driven by the China market (we estimate that its export Core profit (Btm) 1,149 1,500 1,606 1,715
Core EPS (Bt) 0.92 1.20 1.28 1.37
volume to China in 2019 will hike 79% from 2,800 tonnes to 5,000 Core EPS growth (%) -33.9% +30.6% +7.1% +6.8%
tonnes). Its chicken exports (chicken claws and wings) to China kicked PER (x) 16.5 11.4 10.6 9.9
off in 2Q18—400-500 tonnes in 2Q18, 700-800 tonnes in 3Q18 and PBV (x) 1.3 1.2 1.1 1.1
1,500-1,600 tonnes in 4Q18. Because its export volume to China leapt Dividend (Bt) 0.3 0.4 0.4 0.4
Dividend yield (%) 1.8 2.7 2.8 3.0
100% QoQ in 4Q18, we believe that there is a scope for an upside to ROE (%) 8.5 11.4 11.3 11.2
our assumption of export volume to China of 5,000 tonnes in 2019.
Certified
CG/Anti-corruption /
GFN turnaround and improved McKey profit in 2019
With YoY higher mean byproduct prices in 2019 (Bt11-12/kg versus
Bt7-8/kg) pegged with the higher domestic chicken price, we assume
that GFN will hit black ink of Bt80m in 2019, or a YoY turnaround from
its Bt154m 2018 net loss. We also estimate Bt435m in McKey’s net Prasit Sujiravorakul
profit in 2019, up 50% YoY, fueled by a greater capacity utilization rate Securities Fundamental Investment Analyst
of its new processing plant, higher export volume and a focus on higher prasit@bualuang.co.th
value-added high-margin products. +66 2 618 1342

See disclaimer at the end of report


| RESEARCH

GFPT: Financial Tables – Year


PROFIT & LOSS (Btm) 2017 2018 2019E 2020E 2021E Revenue growth and asset turnover
Revenue 16,928 16,647 17,438 17,898 18,289
Cost of sales and services (14,151) (14,185) (14,733) (15,092) (15,377) % Revenue growth (%) (LHS) x
Gross profit 2,778 2,462 2,705 2,806 2,912 Asset turnover (x) (RHS)
6 1.4
SG&A (1,316) (1,340) (1,395) (1,432) (1,463) 4 1.2
EBIT 1,461 1,122 1,310 1,374 1,449 2 1.0
Interest expense (74) (79) (80) (80) (80) 0
318 297 305 322 347 0.8
Other income/exp. (2)
EBT 1,705 1,340 1,535 1,616 1,716 (4) 0.6
Corporate tax (230) (252) (276) (291) (309) (6) 0.4
After-tax net profit (loss) 1,476 1,088 1,259 1,325 1,407 (8) 0.2
Minority interest (10) (10) (11) (11) (11) (10) 0.0
Equity earnings from affiliates 272 71 252 292 319 15 16 17 18 19E 20E 21E
Extra items (76) (111) 0 0 0
Net profit (loss) 1,662 1,038 1,500 1,606 1,715 A/C receivable & A/C payable days
Reported EPS 1.33 0.83 1.20 1.28 1.37
days AR / Sales (days)
Fully diluted EPS 1.33 0.83 1.20 1.28 1.37
1,738 1,149 1,500 1,606 1,715 35 AP / Cost of Goods (days)
Core net profit
Core EPS 1.39 0.92 1.20 1.28 1.37 30
EBITDA 2,686 2,401 2,673 2,871 3,073 25
20
KEY RATIOS 15
Revenue growth (%) 1.4 (1.7) 4.7 2.6 2.2 10
Gross margin (%) 16.4 14.8 15.5 15.7 15.9 5
EBITDA margin (%) 15.9 14.4 15.3 16.0 16.8 0
Operating margin (%) 8.6 6.7 7.5 7.7 7.9 15 16 17 18 19E 20E 21E
Net margin (%) 9.8 6.2 8.6 9.0 9.4
Core profit margin (%) 10.3 6.9 8.6 9.0 9.4 Profit margins
ROA (%) 9.9 5.9 8.0 8.1 8.1
Gross margin (%)
ROCE (%) 11.0 6.5 9.0 9.0 9.1 %
1.0 0.9 0.9 0.9 0.9 EBIT margin (%)
Asset turnover (x)
20
Current ratio (x) 1.8 1.9 2.0 2.0 1.9
Gearing ratio (x) 0.3 0.3 0.2 0.2 0.2 15
Interest coverage (x) 19.7 14.3 16.4 17.2 18.1
10
BALANCE SHEET (Btm)
Cash & Equivalent 736 1,240 1,057 1,079 765 5
Accounts receivable 1,013 975 1,051 1,079 1,102
0
Inventory 3,608 3,528 3,713 3,804 3,876
15 16 17 18 19E 20E 21E
PP&E-net 8,849 9,298 10,027 10,831 11,739
Other assets 387 375 450 498 542 Capital expenditure
Total assets 17,279 18,130 19,256 20,542 21,594
924 1,143 1,211 1,240 1,264 Bt,bn Capex (Bt,bn) %
Accounts payable
1,877 1,680 1,550 1,550 1,550 Capex / Net PPE (%)
ST debts & current portion 3.0 25
Long-term debt 1,700 1,760 1,850 1,950 1,750
529 655 686 705 720 2.5 20
Other liabilities
Total liabilities 5,205 5,403 5,470 5,622 5,465 2.0
15
Paid-up capital 1,254 1,254 1,254 1,254 1,254 1.5
Share premium 525 525 525 525 525 10
1.0
Retained earnings 10,156 10,814 11,861 12,982 14,179
11,944 12,603 13,652 14,774 15,972 0.5 5
Shareholders equity
Minority interests 131 124 135 146 157 0.0 0
Total Liab.&Shareholders' equity 17,279 18,130 19,256 20,542 21,594 15 16 17 18 19E 20E 21E

CASH FLOW (Btm) Debt serviceability


Net income 1,662 1,038 1,500 1,606 1,715
Depreciation and amortization 1,225 1,279 1,363 1,497 1,623 x (ST debt + Interest) / EBITDA
2 338 (194) (89) (72) (Debt + Interest) / EBITDA
Change in working capital 3
FX, non-cash adjustment & others (433) (177) (224) (277) (304)
Cash flows from operating activities 2,456 2,478 2,445 2,738 2,962 2
Capex (Invest)/Divest (1,502) (1,502) (2,092) (2,301) (2,532) 2
Others 152 127 (42) (29) (27)
1
Cash flows from investing activities (1,350) (1,375) (2,134) (2,331) (2,558)
Debt financing (repayment) (230) (137) (40) 100 (200) 1
Equity financing 0 0 0 0 0 0
Dividend payment (376) (376) (453) (485) (518) 15 16 17 18 19E 20E 21E
Others 152 127 (42) (29) (27)
Cash flows from financing activities (680) (599) (493) (385) (718) Dividend payout
Net change in cash 425 504 (183) 22 (314)
Bt/Shr Dividend (Bt) %
Free cash flow (Btm) 954 976 352 436 431 Payout ratio (%)
FCF per share (Bt) 0.8 0.8 0.3 0.3 0.3 0.5 35
0.41
2017 2018 2019E 2020E 2021E 0.4 0.36 0.39 30
Key assumptions 0.30 0.30 25
Sales volume - feedmill (tonnes) 537,286 540,930 559,440 582,160 589,760 0.3 0.25 0.25 20
Sales volume - domestic sales (tonnes) 69,383 71,464 72,894 74,352 75,839
0.2 15
Sales volume - export sales (tonnes) 48,503 50,824 52,348 53,919 55,536
10
Avg. selling price - feedmill (US$/tonne) 6,290 5,787 5,614 5,434 5,488 0.1
5
Avg. selling price - domestic sales price (Bt/kg)28.5 25.4 27.0 27.0 27.0
4,159 4,283 4,412 4,412 4,412 0.0 0
Avg. selling price - export price to Japan (US$/tonne)
15 16 17 18 19E 20E 21E

GFPT - 2
| RESEARCH

GFPT: Financial Tables – Quarter


QUARTERLY PROFIT & LOSS (Btm) 4Q17 1Q18 2Q18 3Q18 4Q18 Revenue trend
Revenue 4,245 3,958 3,982 4,517 4,190 %
Bt,bn Revenue (Bt,bn) (LHS)
Cost of sales and services (3,571) (3,439) (3,395) (3,811) (3,541) Revenue growth (% YoY)
4.6 8
Gross profit 673 519 588 706 649 4.5 6
SG&A (312) (341) (340) (334) (324) 4.4
4.3 4
EBIT 361 178 247 372 325 4.2 2
Interest expense (18) (18) (20) (20) (20) 4.1
4.0 0
Other income/exp. 60 80 86 75 56 3.9 (2)
EBT 404 240 314 426 361 3.8
3.7 (4)
Corporate tax (103) (46) (77) (64) (65) 3.6 (6)
After-tax net profit (loss) 301 193 237 362 296 2Q17 4Q17 2Q18 4Q18
Minority interest (3) (3) (3) (3) (2)
Revenue trend (accumulated)
Equity earnings from affiliates 17 (45) (22) 78 60
Extra items (76) 0 0 0 (111) Bt,bn Accum. Revenue (Bt,bn) %
% of FY Revenue
Net profit (loss) 239 146 212 437 244 18
Reported EPS 0.19 0.12 0.17 0.35 0.26 16 100 100 120
Fully diluted EPS 0.19 0.12 0.17 0.35 0.19 14 100
12 75 75
Core net profit 315 146 212 437 354 80
10 49 48 60
Core EPS 0.25 0.12 0.17 0.35 0.28 8
6 24 40
EBITDA 667 488 567 698 648 4
2 20
KEY RATIOS 0 0
Gross margin (%) 15.9 13.1 14.8 15.6 15.5 2Q17 4Q17 2Q18 4Q18
EBITDA margin (%) 15.7 12.3 14.2 15.5 15.5
Operating margin (%) 8.5 4.5 6.2 8.2 7.8 Net profit trend (accumulated)
Net margin (%) 5.6 3.7 5.3 9.7 5.8 Bt,m Accum. Profit (Bt,m)
% of FY Profit
%
Core profit margin (%) 7.4 3.7 5.3 9.7 8.5 1,800
1,600 100 100 120
BV (Bt) 9.6 9.7 9.6 10.0 10.1
1,400 86 100
ROE (%) 8.0 4.8 7.1 14.1 7.7 1,200
77
ROA (%) 5.5 3.4 4.8 9.8 5.4 80
1,000 55
Current ratio (x) 1.8 1.8 1.7 1.9 1.9 800 60
34
600 40
Gearing ratio (x) 0.3 0.3 0.3 0.3 0.3 14
400
Interest coverage (x) 20.6 9.7 12.3 18.2 16.4 200 20
0 0
QUARTERLY BALANCE SHEET (Btm) 2Q17 4Q17 2Q18 4Q18
Cash & Equivalent 736 719 1,293 1,489 1,240
Accounts receivable 1,013 930 997 1,016 975 Gross profit margin
Inventory 3,608 3,740 3,170 3,235 3,528 FY GPM (%)
%
PP&E-net 8,018 8,119 8,213 8,300 8,447 Gross margin (%)
Other assets 3,890 3,876 3,766 3,831 3,912 20
Total assets 17,279 17,408 17,460 17,904 18,130 15
Accounts payable 925 1,153 1,087 1,126 1,143
ST debts & current portion 1,877 1,703 2,063 1,883 1,680 10
Long-term debt 1,700 1,600 1,600 1,760 1,760
5
Other liabilities 529 529 535 540 655
Total liabilities 5,205 5,185 5,399 5,403 5,403 0
Paid-up capital 1,254 1,254 1,254 1,254 1,254 2Q17 4Q17 2Q18 4Q18
Share premium 534 534 534 534 535
Retained earnings 10,242 10,302 10,138 10,574 10,814 EBIT margin
Shareholders equity 11,944 12,090 11,925 12,362 12,603 % FY EBIT margin (%)
Minority interests 131 133 136 139 124 EBIT margin (%)
12
Total Liab.&Shareholders' equity 17,279 17,408 17,460 17,904 18,130
10
Key statistics 4Q17 1Q18 2Q18 3Q18 4Q18 8
Sales volume - livestock feedmill (tonnes) 32,400 31,500 33,700 33,600 35,200 6
Sales volume - aqua feedmill (tonnes) 15,300 11,000 12,400 15,200 13,900 4
Sales volume - domestic sales (tonnes) 16,200 16,300 14,900 17,100 18,000
2
Sales volume - direct export (tonnes) 7,300 7,200 7,900 8,700 8,900
0
Sales volume - indirect export (tonnes) 4,400 3,700 4,300 5,700 4,400
2Q17 4Q17 2Q18 4Q18
Avg. selling price - direct export price (US$/tonne)
4,200 4,000 4,000 4,000 3,900

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%).

GFPT - 3
| RESEARCH

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

(Bt/kg) Chicken price - Bangkok (LHS) (Bt/kg) (tonnes) (tonnes)


+3.0%
60 Chicken price - Nakhon Pathom (LHS) 80 Raw (LHS)
+11.1% 917,000
Chicken - Chon Buri (RHS) 600,000 Cooked (LHS) +7.9% 1,000,000
890,000
70 801,371 900,000
50 Total (RHS) +9.1%
500,000 +17.5% 742,969
60 800,000
681,073
40 700,000
50 400,000
525,682 600,000
462,525
30 40
300,000 397,069 579,466 500,000
552,362
+10.2%
30 333,523 400,000
20
Chon Buri = Bt36/kg as of Mar 22, 2019 200,000 435,059
384,000 300,000
Nakorn Pathom = Bt34/kg as of Mar 22, 2019 20
Bangkok = Bt34.50/kg as of Mar 22, 2019 296,957
10 200,000
10 100,000
100,000
0 0
- -
1/1/2008

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

GFPT - 4
| RESEARCH

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

Source: Company data Source: Company data

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

GFPT - 5
| RESEARCH

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.

Valuation and recommendation


TRADING BUY on 2019 earnings recovery theme: We adopt a Gordon’s PEG-based
valuation for GFPT and derive a YE19 target price of Bt16.25 (which is pegged with the implied
PER of 13.6x, assuming perpetual dividend payout ratio of 30%, perpetual ROE of 11.6% and
perpetual growth rate of 8%). If looking at its long-term forward PER band (2002-2021), it used
to trade at its recent PER high of 14.19x (or +0.97SD over its long-term mean of 8.28x) in Aug
2018. If applying PER of 14.2x to our 2019 EPS of Bt1.2/share, we could derive a PER-peg
target price of Bt17/share. Our TRADING BUY stands, premised on its earnings recovery in
2019 fueled by higher domestic byproduct margin (in tandem with improved domestic live
chicken price and lower SBM costs) and greater equity income from both GFN and McKey
(GFN turnaround and higher McKey profit).

GFPT - 6
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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

+1.0 SD = 14.40x 2.1 +1.0 SD = 1.80x


15
1.6
LT-average = 8.28x
LT-average = 1.20x
10
1.1
-1.0 SD = 0.61x
5 0.6

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

Foreign holdings Short selling activities during past four weeks

% GFPT Agri Btm


25 1
20.9 1
20 1
15 1
0
10 0
0
18/2/19
20/2/19
22/2/19
24/2/19
26/2/19
28/2/19
2/3/19
4/3/19
6/3/19
8/3/19
10/3/19
12/3/19
14/3/19
16/3/19
18/3/19
20/3/19
22/3/19

5
0
8/18 9/18 10/18 11/18 12/18 1/19

GFPT - 7
| RESEARCH

Bualuang Securities Public Company Limited DISCLAIMER

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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any securities. The use of any information shall be at the sole discretion and risk of the user.

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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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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
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BUALUANG SECURITIES PUBLIC COMPANY LIMITED IS OR MAY BE AN UNDERWRITER/CO-UNDERWRITER/JOINT LEAD IN RESPECT OF


THE INITIAL PUBLIC OFFERING (IPO) OF SECURITIES.

Lead underwriter/
Financial Advisor Underwriter/
Co-underwriter

CG Rating

Score Range Score Range Description


90 – 100 Excellent
80 – 89 Very Good
70 – 79 Good
60 – 69 Satisfactory
50 – 00359 Pass
Below 50 No logo given N/A

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.

GFPT - 8
| RESEARCH

CORPORATE GOVERNANCE REPORT DISCLAIMER

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.

Corporate Governance Report disclaimer


The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of
the Office of the Securities and Exchange Commission. The IOD survey is based on the information of a company listed on the Stock Exchange of
Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is
from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be
changed after that date. Bualuang Securities Public Company Limited neither confirms nor certifies the accuracy of such survey results.

“Disclaimer: The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by the
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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
Company Limited neither confirms, verifies, nor certifies the accuracy and completeness of the assessment result.”

BUALUANG RESEARCH – RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS

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.

GFPT - 9

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