• Livestock operations in Thailand and Vietnam to turn profitable from price recovery by 2H18F
• Maintain OUTPERFORM rating with Bt28 TP; core business is valued at 14x FY18F P/E, in line with peers’ average multiple

Expect to report Bt512m core loss for 1Q18F

We attended an analyst meeting yesterday. Management guided that 1Q18 operation would remain weak which is in line with our view. We expect CPF to report smaller core loss of Bt512m compared to Bt871m loss in 4Q17 and Bt2.2bn core profit in 1Q17. The qoq improvement would be driven by swine price recovery in Vietnam, up 10% qoq. However, livestock operation in Thailand remained weak following low chicken price (-2% qoq) and low swine price (-7% qoq). Gross margin should be flat qoq at 9.7%. SG&A/Sales ratio should drop to 10.1% vs 10.3% in 4Q17 following CPF’s cost-cutting plan. Higher feedstock prices (corn +17% ytd, soybean meal +3% ytd) had not filtered through to CPF’s livestock production cost in 1Q18 because it has kept corn-feedstock inventory until next harvest season in July-August.

Signs of recovery in swine operation

For domestic market, average swine price has recovered faster-than-expected to Bt55-59/kg in April vs Bt46.7 in 1Q18, due to supply reduction and price control by the government. This implies CPF’s domestic swine operation should turn profitable as its production cost is Bt52-53/kg. Chicken operations remain breakeven as average chicken price stays flat ytd at Bt32/kg amid an oversupply situation. There is headwind from rising corn price to Bt10.3/kg (+17% ytd), but the risk is capped after the government directed local feed suppliers can buy 2 tons (instead of 3 tons) of domestic corn for every ton of imported feed wheat. We see limited impact to CPF after China allowed the import of chicken by-products from Thailand as chicken exports to China accounts for 1% of CPF’s revenue. Meanwhile, Vietnam swine price is recovering gradually to VND30,000-32,000/kg (vs VND31,000/kg in 1Q18) following natural supply reduction.

Operations have bottomed-out in 1Q18; near-term catalyst would be recent strong domestic swine prices

Our TP comprises Bt3.2/sh for the core business based on 14x FY18F P/E and Bt25/sh for its 35% stake in CPALL based on Bt82/sh TP. We expect CPF’s share price to outperform the market this year given strong earnings turnaround from 2Q18F following strong recovery of domestic swine prices.