Charoen Pokphand, TP of Rp3,250

Stronger growth this year
Slower profit growth has been anticipated. FY11 net profit growth of 7% YoY to Rp2,35t was 6% below our expectation. The shortfall was due to higher interest expense due to a loan drawdown of around US$90m for expansion and refinancing of US$250m in syndicated loan facilities obtained in September last year. However, items up to the operating profit line were within our expectations.

DOC sales above our expectation. Although DOC prices declined by 20% YoY to Rp3,231 per Kg, DOC revenue only declined slightly, by 2% YoY to Rp2,405b. We see that sales volumes of DOC grew by 23% YoY to 744.9m birds, as lower DOC prices last year encouraged DOC demand for chicken breeding, especially during 2H11 festivities.

FY11 capital expenditure surpassed expectations. FY11 capital expenditure reached Rp1.43t (19% above our expectation). We expect that capital expenditure this year would be lower than last year, as management had previously targeted capital expenditure totalling
Rp2.5t over FY11-FY13. Expecting better earnings growth in FY12. We expect a better
performance in FY12. The catalysts to support earnings growth include the following: 1) Better chicken prices until the end of March 2012; average chicken selling prices rebounded by 9% and 39% respectively to Rp16,800/kg and Rp4500/bird from average price last year. 2)
Potentially higher margins at the poultry feed segment amid lower raw material costs; 3) Expansion of production capacity last year which will boost revenue this year.

Maintain BUY, raise TP to Rp3,250. We slightly upgrade our TP to Rp3,250 (from Rp3,200) as we raise our DOC selling price assumption for this year. Our TP pegs the stock at 18.2x 2012 PER. Reiterate BUY.

source: KIMENG 5 April 2012