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Rabu, 18 Mei 2011

CPIN, cautious outlook - CLSA

Despite strong 1Q11 results, Jessica Irene maintains her SELL call on Charoen Pokphand Indonesia (CPIN IJ). CPIN has a strong start this year and we were too conservative on our gross margin assumption this year. 1Q11 operating and net profits are both making up 31% of our FY assumption. CPIN has increased prices by more than 25% YTD to partially offset higher corn and soybean meal prices. Jessica raised her earnings forecast by 17.8% and 22.2% for FY11 and FY12 respectively.

The problem is that chicken meat prices should follow as farmers need to pass on their feed cost inflation. But that does not seem to be the case. Jess’s work suggests that farmer’s earnings are down 29% YoY.

We also met CPIN’s competitors recently and learned that in the 2nd quarter market is flooded with day old chicken (DOC). In fact DOC is now selling below costs. While DOC only makes up about 15% of CPIN’s sales, this is a very important indicator, in our view. Clearly not a good indicator as this will mean market is likely to be flooded with chicken in a few months time.

Key points of the report:
Revising up our earnings by 18% this year based on higher ASP assumptions.
CP Indo has been successful in increasing its feed and DOC prices by more than 25% YTD.
However, despite the strong start of the year, we remain cautious on the company’s ability to continue increasing ASP going forward given relatively weak chicken meat prices.
We upgrade our target price by 9% to Rp1,750 per share following our earnings upgrade for the year but maintain our SELL call on the stock.
Valuation: stock currently trades at 15x11CL PE versus its peers at 13x.
Posted by Saham Pilihan at 23.23

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