BR - Soften quarter due to low season (TP Bt8.7, OUTPERFORM)
(19/04/2018 - 09:45)
กลุ่มอุตสาหกรรม อาหารและเครื่องดื่ม
หุ้น BR
มูลค่าพื้นฐาน 0.00
คำแนะนำ BUY
  • Expect 1Q18F core earnings to grow 45% yoy driven by strong Netherlands operation and higher duck prices in Europe
  • Trimmed FY18F profit by 3.9% following renovation at Bang Phi plant and lower gross margin due to higher feedstock cost
  • OUTPERFORM, cut TP to Bt8.7 (from Bt10) based on 14x FY18F PE; BR offers good earnings visibility among livestock producers

 

Expect 1Q18F profit to come in at Bt121m (-28% qoq, +45% yoy)

This should be supported by strong Netherlands operation. Average duck price in Europe had risen from EUR2.0/kg to EUR2.5/kg in 2017. YTD, it is down 5% but remains c.10% higher than 2017 average. Revenue should fall 12% qoq due to low season in Europe and renovation at Bang Phi plant. This would reduce export orders to Europe which account for c.8% of total sales, but there would be limited impact on earnings given low gross margins of 3-5%. Group gross margin should improve to 17.4% vs 16.9% in 1Q17 following higher price in Europe and stable price in Thailand. SG&A Cost/Sales ratio is under control at 9.9% vs 11.6% in 1Q17, due to absence of Bt20m advisory fee. Overall, these should take 1Q18F earnings to Bt121m (-28% qoq, +45% yoy). QoQ drop in earnings is due to seasonality in Europe.

 

Domestic downstream operation to support FY18F growth

The food processing plant at Pathum Thani commenced operation in March as planned, and we are sticking to Bt400m sales target in FY18F, in line with guidance. BR is ramping up utilization of its sausage factory which was acquired from a Japanese company in Dec-17 to 20% and is targeting Bt100m sales in FY18. BR also plans to expand slaughter capacity at Sa Kaeo province from 15m ducks to 18m per year by FY19F and 24m by FY23F with Bt1.0bn total CAPEX. We have yet to include this in FY19F earnings. Separately, we trimmed FY18F earnings by 3.9% after reducing revenue by 3.9% due to renovation at Bang Phi plant, and gross margin by 0.1 ppt due to higher feedstock cost. 

 

Good earnings visibility among livestock plays

We maintain an OUTPERFORM rating for BR with a lower TP of Bt8.7 (from Bt10) based on 14x FY18F PE (3-year mean multiple) following the earnings downgrade. We like BR for offering good earnings visibility. Domestic duck price is less volatile than swine and chicken prices, while duck price in Europe should be stable after tighter restrictions on duck farming following the bird flu outbreak last year. However, the share price will be pressured by softer qoq earnings in the near term.