Brokers’ take: Maybank upgrades CP Foods to ‘buy’ ahead of Vietnam IPO

Michelle Zhu

Published Mon, Apr 25, 2022 · 04:06 PM

MAYBANK Securities has upgraded its call on Thailand-listed Charoen Pokphand Foods (CP Foods) to “buy” from “hold” on the conglomerate’s plans for its indirect subsidiary, CP Vietnam, to go public by listing on the Ho Chi Minh Stock Exchange.

CP Vietnam is a bolt-on acquisition of CP Foods when it acquired a 75 per cent stake in CP Pokphand Co (CPP), which was then listed in Hong Kong. The 2012 acquisition was valued at 66.3 billion baht (S$2.7 billion).

In a report on Monday (Apr 25), analyst Suttatip Peerasub said she expects CP Vietnam’s upcoming initial public offering (IPO) to give CP Foods more flexibility as well as unlock value of its Vietnamese unit.

“This is a new development creating positive sentiment on CP Foods,” said Peerasub of the upcoming IPO.

Noting how CP Vietnam’s 9-year sales CAGR (compound annual growth rate) of 11 per cent is the equivalent of 43.6 billion baht in FY2012, to 111 billion baht in FY2021, Peerasub remains positive on the unit’s sales growth outlook.

“The IPO will give CP Vietnam more flexibility to raise funds for further expansion to drive growth,” she added.

While she noted a likelihood of “lacklustre” Q1 FY2022 results for the group, the analyst believes the weak profit outlook may have been priced in given its 5 per cent share price decline over the past 3 months.

Going forward, Peerasub sees prospects for improvement CP Foods’ operations from Q2 FY2022 on the back of higher swine prices and a recovery in demand post-lockdown, which should help to offset the pressures faced from higher raw material costs.

“Swine price in Vietnam has recovered to 55,000 dong (S$3.29) per kg from 38,000 dong per kg in October 2021. We expect a similar case in Thailand. Higher product prices will compensate for the spike in feed materials,” said the analyst.

Maybank’s price target on CP Foods remains unchanged at 27.90 baht. As at 12.30 pm in Bangkok, the counter was trading flat at 23.90 baht on the Stock Exchange of Thailand.