COMPANY NOTES PT Charoen Pokphand Indonesia TBK (CPIN IJ) Bayu Cahyadi [email protected] MARKET CAP IDR 61.9 TRILLION FREE FLOAT 44.47%, 7.3 BILLION SHARES CURRENT PRICE IDR 3775/SHARE TARGET PRICE IDR 3900-4400/SHARE UP/DOWNSIDE +3.3-16.56% RATING BUY EXPECT MORE FROM PROCESSED CHICKEN Poultry industry has been hit by low Day Old Chick (DOC) price – the selling price was below the production cost. We believe that the worst condition might end anytime soon and will be stabilized in 2015. The latest news from Japan-Indonesia deal – Indonesian companies are allowed to export processed chicken products to Japan, show an opportunity for poultry companies to perform better in processed chicken segment. As a market leader, PT Charoen Pokphand Indonesia Tbk (CPIN), will get the most benefit from exporting its products. In Indonesia, CPIN’s products are well known and become people’s favorite. Disappointing Performance There were surpluses of 7 million DOCs per week, oversupply, which became a challenge to the poultry industry throughout 2014. Poultry companies posted disappointing performance. The market leader in the industry, PT Charoen Pokphand Indonesia Tbk (CPIN), posted declining gross profit to Rp 3.39 trillion, -15.7% YOY in 3Q14. Second biggest player in the market, PT Japfa Comfeed Indonesia Tbk (JPFA), posted lower gross profit as well to Rp 2.62 trillion, -13.6% YOY in 3Q14. Selling for Loss. Throughout the year, the total DOC production hit 2.3 billion units. Averagely, breeders lost Rp 1000/unit because the selling price was lower than the production cost. This condition encouraged breeders to close their businesses. Executive Vice President Head of Feed Division JPFA, Herwanto, said that total loss for laying hens’ companies was around Rp 350 billion. The Bull will be Back. Looking at current condition, it is not attractive to buy poultry. However, bottom fishing the stock might be good idea because the market always finds the equilibrium level for everything. We expect the oversupply condition will be over in 2Q15-3Q15, assuming there will be more poultry owners stop their productions. Finding the Strongest Player. Among all the listed companies, CPIN has the strongest balance sheet, stating net debt/equity ratio of 0.41 in 3Q14. However, CPIN’s net debt/equity increased by 221.6% due to aggressive expansion – Total asset increased from Rp 14.2 trillion to Rp 19.2 trillion. 30 December 2014 www.profindo.com PT Charoen Pokphand Indonesia Tbk More Information About Charoen Looking into each segment, DOC showed a significant decline in gross margin from 30.6% 3Q13 to 3.6% 3Q14. While DOC segment had a lousy performance, Feed segment only declined slightly in gross margin from 16.82% 3Q13 to 14.07% 3Q14. Interestingly, processed chicken segment showed exciting gross margin of 30.25% in 3Q14. What We Expect in 2015 for CPIN The deal between Indonesia and Japan opened access for the Indonesian poultry business to enter the Japanese market. The access to enter the Japanese market has been benefiting three poultry companies: CPIN, JPFA and MAIN. We expect that processed chicken segment will grow 30% in 2015 with improving gross margin by 200 bps to 32%. Also, we expect that the gross margin for the DOC segment will improve 140 bps to 5% FY15F. We estimate that the export value would be around Rp 1.7 tn to Rp 2.1 tn. Valuation and Recommendation While we assume that the processed chicken segment grow by 30% in FY15F, we remain conservative for the other segments, assuming 10% growth. We estimate that CPIN will be able to ink Rp 2.9 trillion net profit FY15F or EPS of Rp 177/share. Thus, we estimate that the fair equity value for CPIN would range between Rp 3900/share to Rp 4400/share. We recommend BUY for CPIN, considering competitive and experienced management, improving sales and strong balance sheet. Page |2 PT Charoen Pokphand Indonesia Tbk KANTOR PUSAT KANTOR CABANG BANDUNG http://www.profindo.com Gedung Permata Kuningan, Lt. 19 Jl. Kuningan Mulia, Kav. 9C, Guntur Setiabudi Jakarta Selatan 12980 Phone : +62 21 8378 0888 Fax : +62 21 8378 0889 Jl. Sunda No. 50B Bandung, Jawa Barat Phone : +62 22 420 2678 Fax : +62 22 420 2676 EMAIL : [email protected] [email protected] DISCLAIMER This research report is prepared by PT PROFINDO INTERNATIONAL SECURITIES for information purposes only and is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. The report has been prepared without regard to individual financial circumstance, need or objective of person to receive it. The securities discussed in this report may not be suitable for all investors. The appropriateness of any particular investment or strategy whether opined on or referred to in this report or otherwise will depend on an investor’s individual circumstance and objective and should be independently evaluated and confirmed by such investor, and, if appropriate, with his professional advisers independently before adoption or implementation (either as is or varied). Page |3
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