We estimate 4Q19F core profit at Bt3.4b (+105% yoy, +7% qoq), as higher swine prices would lift gross margin. Growth will continue into 1Q20F driven by (1) shortage of pork in Vietnam, (2) stronger demand for Chinese New Year festivities, and (3) a weaker Thai baht. We maintain a BUY recommendation for CPF and Bt33.50 TP based on 16x FY20F EPS.

Higher swine prices in Vietnam

Average swine prices in Thailand had dropped to Bt60.33/kg (-7% yoy, -8% qoq), in 4Q19 but the average price in Vietnam had surged to VND65,000/kg (+31% yoy, +68% qoq). This should lift gross margin from 13.5% in 3Q to 14.4% in 4Q19. In addition, CPF should book c.Bt2.2b stock gain (extra item) for biological assets. This would take 4Q19F net profit to Bt5.7b (+240% yoy).

Expect earnings to continue to grow in 1Q20

1Q20F earnings would be driven by (1) shortage of pork in Vietnam, (2) stronger demand during Chinese New Year, and (3) a weaker Thai baht. In mid-January 2020, swine prices in Vietnam reached VND80,000/kg and up to VND100,000 in some areas, compared with breeding cost of VND34,000/kg. The Vietnamese government might import pork to meet domestic demand while controlling prices to curb inflation, but we expect average swine prices in Vietnam to remain high in 2020 at VND55,000-60,000 per kg as global supply of pigs has dropped sharply. Meanwhile, domestic chicken prices should recover because that is a popular substitute for pork.

Maintain BUY rating and Bt33.50/sh TP

Our TP is based on 16x FY20F EPS. We like CPF because earnings will continue to grow in 1Q20.