*The Company may be issuer of Derivative Warrants on these securities.

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DAI LY Navigator Thailand Top Stock Ideas b

Charoen Pokphand Foods (CPF.BK/CPF TB)*
Earnings bounce back
Bt29.00 Outperform
Maintained
Earnings preview
1 Suthep Amrit Singh
2 66.2658.8888 Ext. 8852
3 suthepa@kgi.co.th

Clear margin recovery

Livestock business shining

Solid outlook

Maintain Outperform with target price of Bt34.00
Recovery on its way
The view from CPFs analyst meeting remained positive. The company is
on the road to recovery for its shrimp business as concern over Early
Mortality Syndrome (EMS) is already diminishing with expectation of
increased volume and lower prices in 2H14. After reporting a stunning
livestock margin in 1Q14, we expect the chicken and swine prices to
remain high throughout the year but with lower margin going forward as
we expect a gradual increase in raw material cost as well. Overseas
business remains strong due to recovery in its Vietnam livestock business &
lesser loss for aqua business and breakeven in Turkey. We remain
optimistic on strong earnings growth this year driven by recovery in shrimp
business and overseas business and steady growth in livestock business.
We maintain our Outperform rating with a target price of Bt34.00.

Clear signs of gross margin recovery
During 1Q14, the normalized profit stood at Bt1.88bn beating our
previous estimate of Bt1.73bn. The surprise element was gross margin
recovery. Gross margin rose to 13.4% in 1Q14 from 9.0% in 1Q13 and
11.3% in 4Q13. The improvement came from improvement in Thai
livestock margin which rose to 16.4% in 1Q14 from 9.3% in 1Q13,
overseas livestock margin (11.6% to 14.0%) and overseas aqua margin
(up from -4.8% to 12.3% in 1Q14). Thai livestock margin improved on
higher farm prices both for chicken and swine and lower raw material
cost. 1Q14 could be considered a very robust period for Thailands
livestock industry after a long weak period. Overseas livestock showed
improvement mainly in Vietnam while the surge in overseas aqua margin
was from the stellar performance in India as it was not hit by the EMS
disease. Going forward, we expect the Thai livestock margin to remain
high, but there might be pressure from higher raw material cost in 2H14
but this should not be substantial. It would however be compensated by
improvement in Thai aqua margin which was at -7.5% in 1Q14. We see
it turning positive in 2H14 when the shrimp crop starts in June.

Livestock business the key driver
Chicken prices averaged Bt43/kg in 1Q14, compared to Bt39/kg in 4Q13.
Likewise, swine prices averaged Bt74/kg compared to Bt68/kg in 4Q13.
Chicken prices during January and February rose to Bt44/kg due to lower
supply entering the market as the abnormally cold weather in Thailand
early this year slowed the growth of the chickens. However, May saw
prices drop to Bt40/kg as additional supplies, which were meant to be
exported to Japan upon lifting of Japans ban on Thai chicken didnt
meet the orders. We expect this to be short lived as orders from Japan
would increase taking up the additional supplies. Meanwhile, swine
prices have been surging every month to Bt79/kg in May largely due to
the current hot weather which led to several diseases slowing the
supplies. Overall, farm prices have been shining at high levels. Corn
prices in 1Q14 averaged Bt8.1/kg but rose to Bt9.3/kg in May due to the
drought in Thailand and soybean prices remaining at Bt21/kg in May and
1Q14. We expect soybean prices to drop as US crop shows good volume
and future prices are declining. Overall, we believe that the raw material
costs will be lower than last year and the farm prices, which should be
high throughout the year given the better supply stability in the country,
would keep livestock margin high.

Figure 1: Farm margin trending up
Raw material price index, points (LHS); domestic farm price index, points (RHS)

Source: Company data; KGI Securities (Thailand) estimates

Outlook solid
We expect the shrimp volume to increase when the crop comes out in
June & July. We believe that the increased volume will drive the price of
raw material down and turn the business profitable. CPP, 71%
subsidiary of CPF, is set to acquire Kaifeng Chia Tai Co, a company that
engaged in production and sale of animal feed in China, and is awaiting
shareholder approval. CPP acquired the company for US$50mn at 10.7x
2013PE. The net profit in 2013 was $4.7mnn so the impact on CPF
would be minimal. We maintain our 2014 normalized earnings forecast
of Bt9.6bn.

Valuation and Recommendation

We maintain our rating of Outperform on CPF with a 2014 target price
of Bt34.00.


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Raw material cost index Domestic Farm price index
Year-end Sales Sales growth EBITDA NP EPS EPS growth
(Bt mn) (%) (Bt mn) (Bt mn) (Bt) (%)
2011 206,099 9.0 20,802 16,117 2.14 18.8
2012 357,175 73.3 18,448 18,790 2.43 13.2
2013 389,251 9.0 11,593 7,065 0.91 (62.4)
2014F 435,961 12.0 27,917 9,764 1.26 38.2
2015F 488,276 12.0 34,735 15,470 2.00 58.4
Year-end GM EV/EBITDA PBV PER Dividend ROAE
(%) (X) (X) (X) Yield (%) (%)
2011 16.3 12.7 3.4 13.5 4.1 19.3
2012 11.6 19.1 2.1 12.0 3.8 18.0
2013 10.0 33.7 2.0 31.8 1.7 6.4
2014F 12.8 13.7 1.9 23.0 1.6 8.4
2015F 13.6 10.8 1.8 14.5 2.2 12.2
Sector 21.8-33.0
34.0 216.8/6.9
17.2 7,742.9
47.4 3,608.2
1.6 2,281.0
15.0 21.3
1.9 (12.5); 10.9; (15.2)
135.4 (18.1); 14.2; (5.3) Net debt/equity-14F (%) Rel. performance (3,6,12M)(%)
Food 52-week trading range (Bt)
12M target price (Bt/shr) Mkt cap-Bt bn/US$ bn
Upside/downside (%) Outstanding shares (mn)
The percentile of excess return (%) Free floating shares (mn)
P/B-14F (x) Abs. performance (3,6,12M)(%)
Dividend yield-14F (%) Foreign ownership (mn)
Book value/shr-14F (Bt) 3M avg. daily trading (mn)

*The Company may be issuer of Derivative Warrants on these securities.

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Rating
Target
price (Bt)
Current
price (Bt)
Upside
(%)
13 EPS
(Bt)
14F EPS
(Bt)
15F EPS
(Bt)
14F EPS
growth
(%)
15F EPS
growth
(%)
14F PER
(x)
15F PER
(x)
14F PBV
(x)
15F PBV
(x)
14F Div
Yield (%)
14F ROAE
(%)
CPF* OP 34.00 29.00 17.2 0.91 1.26 2.00 38.2 58.4 23.0 14.5 1.9 1.8 1.6 8.4
TUF* OP 76.00 69.00 10.1 2.49 4.44 5.64 78.5 27.2 15.5 12.2 1.7 1.5 2.2 10.7
Sector Overweight 67.7 34.1 19.3 13.4 1.8 1.6 1.9 9.6

DAI LY Navigator Thailand Top Stock Ideas b

Figure 2: Peer comparison Key valuation stats

Source: KGI Securities (Thailand) estimates


*The Company may be issuer of Derivative Warrants on these securities.

http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer June 5, 2014 3

Year to 31 Dec (Bt mn) 2011 2012 2013 2014F 2015F
Sales 206,099 357,175 389,251 435,961 488,276
Cost of Goods Sold 172,488 315,838 350,394 380,158 421,871
Gross Profit 33,612 41,337 38,857 55,803 66,406
Operating Expenses 18,909 33,260 36,963 41,852 45,898
Operating Profit 14,703 8,077 1,894 13,951 20,508
Net Interest (2,432) (6,377) (7,937) (8,050) (7,814)
Interest Income 0 0 0 0 0
Interest Expense (2,432) (6,377) (7,937) (8,050) (7,814)
Net Investment Income/(Loss) 3,863 4,138 4,947 5,622 6,326
Net other Non-op. Income/(Loss) 1,240 766 (229) 218 488
Net Extraordinaries 1,641 14,860 8,523 169 0
Pretax Income 19,015 21,465 7,198 11,910 19,508
Income Taxes (2,898) (2,675) (133) (2,146) (4,039)
Net Profit 16,117 18,790 7,065 9,764 15,470
EBITDA 20,802 18,448 11,593 27,917 34,735
EPS (Bt) 2.14 2.43 0.91 1.26 2.00
As of 31 Dec (Bt mn) 2011 2012 2013 2014F 2015F
Total Assets 159,904 310,544 365,003 363,165 375,860
Current Assets 78,427 109,201 124,244 125,274 136,162
Cash & ST Investments 24,341 12,258 22,600 18,548 20,036
Inventories 35,673 48,334 48,469 50,892 55,982
Accounts Receivable 15,692 23,279 24,240 25,452 26,725
Others 2,721 25,329 28,935 30,382 33,420
Non-current Assets 81,476 201,344 240,759 237,890 239,698
LT Investments 25,699 38,031 49,598 49,598 49,598
Net fixed Assets 52,025 97,417 118,041 114,580 115,771
Others 3,753 65,896 73,120 73,712 74,330
Total Liabilities 93,385 189,763 235,431 226,402 227,339
Current Liabilities 46,071 95,218 115,001 110,299 113,494
Accounts Payable 11,733 20,620 21,888 24,077 26,484
ST Borrowings 28,584 56,925 76,856 68,339 67,339
Others 5,755 17,673 16,257 17,883 19,671
Long-term Liabilities 47,314 94,545 120,430 116,104 113,845
Long-term Debts 40,866 84,044 109,176 104,176 101,176
Others 6,448 10,501 11,254 11,928 12,669
Shareholders' Equity 66,519 120,781 129,572 136,762 148,522
Common Stock 7,520 7,743 7,743 7,743 7,743
Capital Surplus 16,436 36,463 36,463 36,463 36,463
Retained Earnings 40,549 52,770 53,493 59,724 70,312
Others -909 7,546 12,095 12,095 12,095
Minority Interest 2,922 16,259 19,778 20,737 21,909
Year to 31 Dec (Bt mn) 2011 2012 2013 2014F 2015F
Operating Cash Flow 17,607 529 9,452 29,713 21,611
Net Profit 15,837 18,790 7,065 9,764 15,470
Depreciation & Amortization 4,739 7,376 7,591 11,351 10,810
Change in Working Capital (3,699) (15,242) 0 (1,268) (5,204)
Others 729 (10,395) (5,204) 9,866 536
Investment Cash Flow (14,049) (14,095) (24,222) (15,397) (12,413)
Net CAPEX (10,290) (20,192) (23,093) (15,000) (12,000)
Change in LT Investment 0 4,229 (4,864) 0 0
Change in Other Assets (3,759) 1,868 3,735 (397) (413)
Free Cash Flow 3,558 (13,566) (14,770) 14,316 9,198
Financing Cash Flow 13,022 46,449 17,792 (16,090) (7,710)
Change in Share Capital 0 1,302 591 0 0
Net Change in Debt 23,089 61,405 31,608 (12,558) (2,828)
Change in Other LT Liab. (10,067) (16,258) (14,407) (3,533) (4,882)
Net Cash Flow 16,580 32,883 3,022 (1,775) 1,488
Year to 31 Dec (Bt mn) 2011 2012 2013 2014F 2015F
Growth (% YoY)
Sales 9.0 73.3 9.0 12.0 12.0
OP 18.2 (31.1) (63.9) 314.0 44.4
EBITDA 13.1 (11.3) (37.2) 140.8 24.4
NP 18.8 16.6 (62.4) 38.2 58.4
EPS 18.8 13.2 (62.4) 38.2 58.4
Profitability (%)
Gross Margin 16.3 11.6 10.0 12.8 13.6
Operating Margin 7.8 3.1 1.0 3.8 4.9
EBITDA Margin 10.1 5.2 3.0 6.4 7.1
Net Profit Margin 7.8 5.3 1.8 2.2 3.2
ROAA 10.1 6.1 2.0 2.7 4.2
ROAE 24.2 15.6 5.5 7.1 10.4
Stability
Gross Debt/Equity (%) 109.2 134.9 169.4 148.7 133.1
Net Debt/Equity (%) 70.9 123.1 151.7 135.4 119.8
Interest Coverage (x) 6.6 1.7 0.5 2.1 3.1
Interest & ST Debt Coverage (x) 0.7 0.4 0.2 0.3 0.4
Cash Flow Interest Coverage (x) 7.2 0.1 1.2 3.7 2.8
Cash Flow/Interest & ST Debt (x) 0.6 0.0 0.1 0.4 0.3
Current Ratio (x) 1.7 1.1 1.1 1.1 1.2
Quick Ratio (x) 0.9 0.6 0.6 0.6 0.7
Net Debt (Bt mn) 51,556 139,212 177,829 169,038 164,291
Per Share Data (Bt)
EPS 2.1 2.4 0.9 1.3 2.0
CFPS 3.2 1.6 2.5 2.0 2.2
BVPS 8.8 15.6 16.7 17.7 19.2
SPS 27.4 46.1 50.3 56.3 63.1
EBITDA/Share 2.8 2.4 1.5 3.6 4.5
DPS 1.2 1.1 0.5 0.5 0.6
Activity
Asset Turnover (x) 1.4 1.5 1.2 1.2 1.3
Days Receivables 27.8 23.8 22.7 21.3 20.0
Days Inventory 63.2 49.4 45.4 42.6 41.8
Days Payable 24.8 23.8 22.8 23.1 22.9
Cash Cycle 66.1 49.4 45.4 40.8 38.9
COGS Depreciation Operating Exp. Operating
Revenue Revenue Revenue Margin
2011 83.7% 2.3% 9.2% 4.8%
2012 88.4% 2.1% 9.3% 0.2%
2013 90.0% 2.0% 9.5% -1.5%
2014F 87.2% 2.6% 9.6% 0.6%
2015F 86.4% 2.2% 9.4% 2.0%
Working Capital Net PPE Other Assets Capital
Revenue Revenue Revenue Turnover
2011 0.31 0.25 0.78 0.75
2012 0.18 0.27 0.87 0.76
2013 0.18 0.30 0.94 0.70
2014F 0.16 0.26 0.83 0.80
2015F 0.16 0.26 0.83 0.80
Operating Capital Cash After-tax Return
Margin Turnover Tax Rate on Inv. Capital
2011 4.8% 0.7 78.7% 2.8%
2012 0.2% 0.8 43.0% 0.1%
2013 -1.5% 0.7 103.4% -1.1%
2014F 0.6% 0.8 85.0% 0.4%
2015F 2.0% 0.8 85.0% 1.3%
= x Year x
Year
= Year 1-
= + 1/
+ +
+

DAI LY Navigator Thailand Top Stock Ideas b

Balance Sheet

Source: Company data; KGI Securities (Thailand) estimates


Key Assumptions & Ratios

Source: Company data; KGI Securities (Thailand) estimates




Profit & Loss

Source: Company data; KGI Securities (Thailand) estimates


Cash Flow

Source: Company data; KGI Securities (Thailand) estimates


Rates of Return on Invested Capital

Source: Company data; KGI Securities (Thailand) estimates


*The Company may be issuer of Derivative Warrants on these securities.

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DAI LY Navigator Contact Information

Thailand Research Name Abbr. Sector Coverage Ext. Email
Itphong Saengtubtim IS Head of Research 8840 itphongs@kgi.co.th
General line: Rakpong Chaisuparakul RC Strategist 8845 rakpongc@kgi.co.th
66.2658.8888 Adisak Kammool AK Retail strategist 8843 adisakk@kgi.co.th
Kingpai Koosakulnirund KK Soft commodity, shipping, small caps 8857 kingpaik@kgi.co.th
Nat Panassutrakorn NP Construction material, contractor, consumer 8849 natp@kgi.co.th
Pragrom Pathomboorn PP Economist 8846 pragromp@kgi.co.th
Thaninee Satirareungchai, CFA TS Banking 8851 thaninees@kgi.co.th
Suthep Amrit Singh SS Food, hotel, land and air transport 8852 suthepa@kgi.co.th
Suchot Tirawannarat ST Automobile, small caps 8850 suchott@kgi.co.th
Orlaluck Wongmasa OW Derivatives 8844 orlaluckw@kgi.co.th
ASEAN Sales Name Abbr. Sector Coverage Ext. Email
General line: Kannikar Pradiskesorn KP Thailand sales 8081 kannikarp@kgi.co.th
66.2658.8888 Datenusorn Rungruang DR Thailand sales 8082 datenusornr@kgi.co.th

The toll-free line for clients in HK and Singapore: 800.0800.5008


*The Company may be issuer of Derivative Warrants on these securities.

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DAI LY Navigator KGI Securities Information

Locations China Taiwan
Shanghai
Room 2703B-2704, Tower A, Shanghai Dawning Centre
500 Hongbaoshi Road
Shanghai, PRC 201103

Shenzhen
Room 24D1, 24/F, A Unit, Zhen Ye Building, 2014
Baoannan Road, Shenzhen
PRC 518008
KGI Securities
700 Mingshui Road,
Taipei, Taiwan
Telephone 886.2.2181.8888
Facsimile 886.2.8501.1691

Hong Kong Thailand
41/F Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong
Telephone 852.2878.6888
Facsimile 852.2878.6800
KGI Securities (Thailand) Plc.
8th - 11th floors, Asia Centre Building
173 South Sathorn Road, Bangkok 10120, Thailand
Telephone 66.2658.8888
Facsimile 66.2658.8014

KGI's Ratings Rating Definition
Outperform (OP) The stock's excess return* over the next twelve months is ranked in the top 40% of
KGI's coverage universe in the related market (e.g. Thailand).
Neutral (N) The stock's excess return* over the next twelve months is ranked in the range
between the top 40% and the bottom 40% of KGI's coverage universe in the related
market (e.g. Thailand).
Underperform (U) The stock's excess return* over the next twelve months is ranked in the bottom 40%
of KGI's coverage universe in the related market (e.g. Thailand).
Not Rated (NR) The stock is not rated by KGI Securities.
Restricted (R) KGI policy and/or applicable law regulations preclude certain types of
communications, including an investment recommendation, during the course of
KGI's engagement in an investment banking transaction and in certain other
circumstances.
* Excess return = 12M target price/current price-1
Note When an analyst publishes a new report on a covered stock, we rank the stock's
excess return with those of other stocks in KGI's coverage universe in the related
market. We will assign a rating based on its ranking. If an analyst does not publish a
new report on a covered stock, its rating will not be changed automatically.
Source KGI Securities and its subsidiaries and affiliates.

Disclaimer
KGI Securities (Thailand) Plc. ( The Company ) disclaims all warranties with regards to all information contained
herein. In no event shall the Company be liable for any direct, indirect or any damages whatsoever resulting from
loss of income or profits, arising by utilization and reliance on the information herein. All information hereunder
does not constitute a solicitation to buy or sell any securities but constitutes our sole judgment as of this date and
are subject to change without notice.