Brokers’ take: UOBKH upgrades CP Foods to ‘buy’ in view of improved earnings in Q4

UOB Kay Hian (UOBKH) upgraded its call on Thailand-listed Charoen Pokphand Foods (CP Foods) to “buy” from “hold”, as it expects the company to turn around in the fourth quarter of FY2023.

In its report on Friday (Sep 8), the brokerage also raised its target price for the agro-industrial and food conglomerate to 26 baht, up from 20 previously, as it expects CP Foods’ to “deliver a strong recovery” in FY2024.

The new target price incorporates rolled-over FY2024 estimates with a forward price-to-earnings (P/E) multiple based on CP Foods’ 10-year mean, which is equivalent to 18.3 times.

“Also, we think that the share prices have priced in most of the negative news already,” said analyst Kampon Akaravarinchaithat.

While he expects Q3 to be “loss-making and flattish”, he anticipates the group to turn in a profit by Q4, and clock its highest quarterly earnings for FY2023.

“The pressure on Q3 FY2023 operation is mainly from a decline in swine prices in July and August 2023, which offset the better China swine prices in August 2023. However, we expect Q4 of FY2023 to deliver earnings recovery from the improvement in both domestic and China swine prices, and lower raw material costs,” he said.

The brokerage said that it expected earnings this year to contribute to “a small profit” of 263 million baht (S$10.1 million), and “a strong recovery” to 12 billion baht next year.

Akaravarinchaithat also expects CP Foods to report an even better FY2024 on the back of improved average selling prices and share of profit.

“The key drivers in 2024 will be the recovery in domestic swine prices, lower raw material costs and better China operation,” he said.

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Nevertheless, the analyst lowered his earnings projections for CP Foods by 93.2 per cent for 2023, and by 18.7 per cent for 2024.

The lower estimates were based on “short-term impact from lower domestic and China prices in this year and the more conservative assumption on 2024 outlook”.