Charoen Pokphand Foods shares face downside risk amid falling pork prices and slower sales during second half of 2020

Charoen Pokphand Foods PCL (CPF) shares plunged 5.51 per cent to 30.00 baht, down by 1.75 baht, with a transaction value of 766.1 million baht on Tuesday morning at 11:13 a.m. Meanwhile, analysts have started to see downside risks for the firm.

The shares opened at 31 baht. The price then rose to its highest at 31.00 baht and dropped to its lowest at 29.75 baht.

CPF is a leading agri-food company in Thailand and the core business of CP Group with over 600 retail outlets, such as CP Fresh Mart and CP Food.

The market decline of CPF resulted from negative factors seen during the second half of 2020 including weakening pig prices in Vietnam and the upcoming Tesco investment in Thailand and Malaysia of its parent firm CP Group, according to Nomura Securities. 

Time for the downturn

In the first six months of the year, CPF reported a net profit of 12,139 million baht, increasing by 45 per cent year-on-year from 8,384 million baht.

The company benefited from the spread of the coronavirus as food products attracted higher demand even with lockdown measures in place as well as the rise in agricultural products due to the drought, pork shortage and the depreciation of the Thai baht.

However, it seems like the factors that have driven CPF to perform well in the first half are going to make them perform at a slower pace. 

Since entering the third quarter, the Thai baht has seen appreciation against the US dollar which is a negative factor for the overseas income of CPF. 

The overseas sector accounted for 27 per cent of the company’s revenue in 2019.

Pork shortage 

The rise in pork prices increased revenue for CPF during the African Swine Outbreak (ASF) which affected the regional pork supply in Vietnam, but at present, the pork market has begun to recover and the prices have been stable. 

Charti Phrawphraikul, an analyst from Kiatnakin Phatra Securities, said that the research team expects the company’s earnings to remain volatile. 

“Due to a much higher base and a record-high margin in 2020… further growth will be much more difficult to achieve,” he said.

Prasit Sujiravorakul, a Bualuang analyst, said in a note to clients that the increasing pig herds remained a challenge. 

Pig price averages in Vietnam has dropped 12 per cent in one month. The scale of the decline was 8 per cent from August 27 to September 3, but it has now stabilized at 76,833 Vietnamese Dong per kg during the past few days. 

Phattra rates ‘Neutral’ on CPF with the target price of 26.75 baht while Bualuang rates ‘Buy’ at the target price of 39.75 baht. 

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