FOOD – 3Q24F preview: To be this year’s high

Expect solid 3Q24F core earnings. We expect 3Q24F sector core earnings to improve YoY at all players, backed by a wider margin on better product prices and lower feed costs and more high-margin sales. QoQ, we expect 3Q24F core earnings to grow on seasonality for all except GFPT, whose equity income will be lower. By company, CPF will show the best 3Q24F core earnings growth at Bt6.3bn (turning from a core loss of Bt3.5bn in 3Q23) led by better swine prices in China and Vietnam and higher local livestock prices, followed by BTG at Bt889mn (up from a core loss of Bt736mn in 3Q23), led by higher local livestock prices, and GFPT at Bt543mn (+71% YoY), on more high-margin broiler export sales volume (9,200 tons, +39% YoY from more exports to Europe and +2% QoQ from more exports to Japan) and higher equity income (+89% YoY from more exports for both McKey and GFN, but -24% QoQ on lower local byproduct prices at GFN), and TU at Bt1.5bn (+2% YoY), with more high-margin sales in petcare and frozen units outpacing higher SG&A/sales, interest and tax expenses.

Livestock prices and feed costs in Oct to date. Overseas swine prices. In Oct to date, swine prices in China and Vietnam are CNY18/kg (+18% YoY, -6% MoM) and VND61,000/kg (+22% YoY, flat MoM), above breakeven at the gross profit level for big players (CNY15-16/kg and VND44,000-45,000/kg). We expect overseas swine prices to stay above breakeven for the rest of 4Q24F, backed by supply shortages from a new round of ASF in China beginning in mid-2024 and in Vietnam in 3Q24. Local livestock prices. Local swine price is Bt72/kg (+19% YoY, -2% QoQ) vs breakeven at the gross profit level for big players at Bt60-68/kg. Local broiler price and chicken rib byproduct prices are at this year’s low at Bt39/kg (+9% YoY, -6% MoM) vs breakeven at the gross profit level for big players at Bt38-39/kg and Bt13/kg (-23% YoY, -10% MoM). We expect local livestock prices to improve over the rest of 4Q24F, after the rainy season eases off and after the vegetarian festival (Oct 3-11). Feed costs. Spot corn and imported soybean meal are Bt10.5/kg (-4% YoY, -7% MoM) and Bt19.5/kg (-5% YoY, flat MoM) from more supply.

4Q24F expectation. We expect sector earnings to soften QoQ in 4Q24F from seasonality but still grow YoY on a wider margin. Upside risk. We have not yet factored in upside to earnings from an interest rate cut. INVX’s economist expects the BoT to cut policy rate by 100bps over 12 months (starting with 25bps in Oct, another 25bps in Dec and 50bps cut in 1H25F). If this is the case, upside to our sector annualized earnings will be 4.6% on average, led by CPF (+11%) and followed by BTG (+5%), TU (+1.9%) and GFPT (+0.6%). Downside risk. We are currently setting our FX assumption at Bt36/US$ in our 2024-25F forecasts (vs Bt35.5/US$ in 2024TD). Our sensitivity analysis suggests an appreciation of 1 THB/US$ from our base assumption will hit the sector’s annualized earnings by 0.4% on average, led by TU (-3%, after hedging) and GFPT (-0.7%). We expect the impact on CPF to be negligible as it has a neutral US$ position in exports and imports, with a positive impact on BTG (+2%) as a net importer with feed imports outpacing its broiler exports.

Top pick. CPF is our pick, poised to report the best growth in 3Q24F, with the sector’s largest upside from an interest rate cut and unaffected by a strong THB.

Key risks: Weak prices from fragile purchasing power and more supply, high feed costs and a strong THB. Key ESG risks are GHG emission, waste & water management (E), customer welfare, product quality management, health & safety policies (S)