We have lowered our earnings expectations for 1Q21 and 2021 due to a surge in domestic soybean meal (SBM) cost and weaker export volumes for GFPT and its affiliates. Despite the modest HoH 2H21 core profit rise, its 2H21 core profit will still drop sharply YoY before resuming its YoY rise in 2022. We have downgraded our rating to HOLD, pending its stronger YoY earnings rise in 2022.
GM likely to be squeezed from higher SBM cost in 1H21
We model a GM of 10% in 1Q21, down significantly from 14.7% in 1Q20 and 13.6% in 4Q20. The tumble in 1Q21 GM reflects a surge in domestic SBM cost of around Bt15-17/kg. In 1Q21, its actual domestic SBM and corn costs are estimated to rise 20-25% YoY and 8-9% YoY, respectively, while the average market prices of domestic SBM and corn prices were Bt19/kg (up 39% YoY and 12% QoQ) and Bt9.4/kg (up 9% YoY and 3% QoQ), respectively. The higher SBM cost of around Bt17-19/kg will start to be realized in its feed costs starting 2Q21. Hence, despite the second-quarter high season, the scale of QoQ GM improvement is likely to be modest. We assume a GM of 11.5-12% in 2Q21, down from 14.3% in 2Q20 and up from 10% in 1Q21. Given that the global soybean price broke the US$15/bushel to $15.3/bushel on Apr 25, the 8-year high, led by the current drought situation in the Midwest, we are skeptical if the domestic SBM price will drop in 2H21.