Charoen Pokphand Indonesia (CPIN IJ)

Compressed margin in 3Q24, but core profit remained robust amid non-cash losses

 

  • CPIN booked a lower 3Q24 net profit of Rp619bn (-52% yoy, -41% qoq), dragged by lower DOC and LB margin; yet 9M24 earnings were in line.
  • 3Q24 net profit was supported by resilient revenues and tax gains but was partly offset by losses in changes in fair value of biological assets.
  • We maintain our Buy rating with a TP of Rp6,400 (unch.), reflecting a 30/26x FY24/25F PE ratio.

 

3Q24 net profit was slightly higher than our preview

CPIN reported a net profit of Rp619bn in 3Q24 (-52% yoy, -41% qoq), slightly above the upper limit of our estimate of Rp535bn. Core net profit came in higher at Rp810bn in 3Q24 (-40% yoy, -17% qoq) as it booked Rp175bn in losses from changes in fair value of biological assets in 3Q24. CPIN reported tax gains of Rp56bn in 3Q24, following an above-normal tax rate of 35% in 2Q24, bringing its 9M24 tax rate back to 21.9%. The 3Q24 quarterly net profit declined due to the high base in 2Q24 and 3Q23, as OPM dropped to 3.1% in 3Q24 (3Q23/2Q24: 5.8%/5.7%), mainly due to the significant drop in margin of DOC and livebird segments.

 

Overall margin declined led by DOC and LB segment, partially offset by feed

Feed revenues rose 9% qoq, while OPM increased 129bps qoq to 8.5% in 3Q24, as the company maintained or only slightly reduced its feed ASP amid lower costs, in our view. However, the resilient feed ASP drove DOC and livebird segments’ margin down qoq in 3Q24. DOC margin declined from 13.2% to 2.9%, while livebird margin dropped from 5.4% to -2.3%. Processed foods revenue declined 2% qoq (still +7% yoy) while margin turned back to positive, albeit at only 0.5% in 3Q24 (2Q24: -2.7%).

 

We had anticipated softer 3Q24 earnings and expect a turnaround in 4Q24

9M24 net profit of Rp2.4tr (-11% yoy) formed 69% (core at 71%) and 74% of our and consensus FY24F, respectively. With higher chicken prices anticipated in 4Q24, we expect margin recovery and the reversal of fair value of biological assets to boost 4Q24 net profit.

 

Maintain Buy rating with an unchanged TP of Rp6,400

We keep our FY24-25F estimates and TP unchanged at Rp6,400, derived from 16.3x (-0.5 SD of 5-year average) FY25F EV/EBITDA. We reiterate our Buy rating on margin recovery expectation in 4Q24 as an ST catalyst. Risks to our view include weak LB prices and lower-than-expected feed margin.

 

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