CPF Chart is Starting to Look Bearish as Third-Quarter Earnings Results Were Disappointing

Witawat (Ed) Wijaranakula, Ph.D.
Wed Jan 18, 2017

Charoen Pokphand Foods PCL (SET:CPF), 49.98% stake owned by CPG Group as of March 15, 2016, is a Thailand-based conglomerate agro-industrial and food conglomerate. The company operates in both the livestock (swine, broilers, layers, and ducks) and aquaculture (shrimp and fish) businesses. The vertically integrated businesses incorporate the manufacturing of animal feed, animal breeding and animal farming, meat processing, the manufacturing of semi-cooked meat and fully-cooked meat, food products and ready meal products, as well as meat and food retailer and restaurant businesses.

Charoen Pokphand Foods said on November 11, 2016 that its third-quarter 2016 revenues were up 10.01% year-over-year to 123.08 billion baht, missing the 123.36 billion baht consensus estimate of 6 analysts, according to the Financial Times. CPF posted third-quarter 2016 earnings of 0.63 baht per share, up 81.03% year-over-year, but missed the 0.69 baht per share consensus estimate of 5 analysts. The fourth-quarter 2016 earnings announcement is expected on February 27, 2017. Analysts expect an EPS of 0.35 baht per share on revenues of 115.93 billion baht.

For 2015, the company reported a dividend of 0.75 baht per share. The 19 analysts covering the company expect dividends of 0.94 baht per share for the upcoming fiscal year, representing a year-over-year increase of 25.20%. 

The company may be on an international shopping spree and has made a series of small acquisitions. According to the Nikkei Asian Review, CPF said in early January that it will buy a 33% stake in Poland's SuperDrob Capital Group for 49.5 million euros ($51.6 million). SuperDrob supplies fresh meat and processed chicken products to wholesalers, retailers and restaurants across Europe from its three plants in Poland. In 2015, its sales rose 10% on the year to 212.4 million euros. 

In mid-November, CPF acquired U.S.-based frozen food maker Bellisio Foods for about U.S. $1.1 billion. Established in 1990, Bellisio is the third-largest producer and distributor of single-serve frozen entrees in the U.S., according to the Nikkei Asian Review. Its brands include Michelina's, Boston Market, Chili's and Atkins. In the year 2016 through September, the group generated adjusted net sales of U.S. $668 million and adjusted EBIDA of U.S. $82 million. 

In October, CP Foods bought a 60% stake in UK foodservice supplier The FoodFellas, Ltd. for about U.S. $15 million and paid U.S. $4 million in July for a 80% stake in Norfolk Foods, a Sri Lankan value-added food processor. Norfolk produces ready-to-eat food products under the Crescent trademark. 

From our technical viewpoint, CPF shares, which have been moving in a bearish ascending wedge (AW) chart pattern since mid-2015, are about to break down the AW trendline support. A bearish head-and-shoulders chart pattern will emerge if the stock pulls back to retest the 26.50 level. 

According to the Financial Times, the consensus amongst 23 polled investment analysts covering CPF gave the company an Outperform rating, with the median 12-month price target of 38.00 baht a share, as of January 14, 2017.

Disclosure: No position and no recommendation.


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