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Jumat, 12 Agustus 2011

CP Indonesia (CPIN IJ; CP: IDR2,625; Not rated) - BNP Paribas

Key issues
ƒ Normally volume for both feed and DOC have grown at a rate of 8-12% per annum since 2004. In the 1H, these have grown by 15% and 12% respectively, indicating that demand is strong supported by the fact that poultry consumption is still low compared to the region and rising disposable income.
ƒ Despite challenges in rising raw material prices, the consign has been able to increase the ASP for it's feed from IDR4,300/kg last year to IDR5,100/kg in 1H11. Margins in the mean time did compress from the 23% level to around 20%.
ƒ The company measures ability to raise ASP for both feed and DOC from farmers' profitability. At the end of the day the farmers have to be profitable for the company to be profitable. Typically, in a year where there are 6.6 cycles, at the most two of them will be loss-making for the farmers. Should the farmers become unprofitable for more than two cycles then there is incentive for them to stop farming.

Questions raised
ƒ Processed chicken accounts for only 9% of total revenue but is growing very fast at 60%. What is driving this growth? Mainly increased penetration in the traditional market by increasing the number of freezers which CP has financed and leased out to store owners.
ƒ Does the company plan to increase the processed chicken business to the same scale as its sister company in Thailand (30% of total revenue)? Yes, plans to achieve 20% in the next five years.
ƒ Does the company plan to enter into farming? In the mid term this is the plan, especially when the processed chicken business becomes sizeable becomes a captive market for the large-scale farming business. Currently it is still not cost effective given the scale and huge requirement for working capital.

Current view
ƒ Not rated.

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