Charoen Pokphand Indonesia (CPIN IJ)

3Q23 earnings beat from solid downstream business

CPIN booked robust 3Q23 net profits of IDR1.3tr, supported by higher gross revenues of IDR30tr despite flat q-o-q margins amid rising feed raw material costs. We raised our FY23/24F net profit estimates by 16/12% and maintain our BUY recommendation on the stock with a higher TP of Rp7,200.  

9M23 earnings above expectations on strong downstream performance. CPIN reported net profits of IDR1.3tr in 3Q23 (+69% y-o-y, +14% q-o-q), above our estimate of IDR1tr due to the substantial contribution from its processed foods segment, which enjoyed revenues growth of 30% y-o-y/ 18% q-o-q (with higher margins) and other income of IDR130bn. The strong 3Q23 net profits led to 9M23 reported net profits of IDR2.7tr (-16% y-o-y), forming 86% and 87% of our FY23F estimate and the consensus, respectively, hence, above expectations.

Strong revenues with flat gross operating profit margins. Overall gross revenues rose 14% y-o-y/ 8% q-o-q to IDR30tr in 3Q23, driven by 38% and 18% q-o-q growth in the DOC and processed food segments, respectively. The increase in DOC revenues partly reflects the higher DOC prices during the quarter. The overall gross operating margin remained flat q-o-q at 5.8% in 3Q23 despite the declining feed and broiler margins thanks to the improving margins in the DOC and processed food segments. Feed margins declined to 8.2% in 3Q23 from 9.8% in 2Q23 amid rising raw material costs. Meanwhile, processed food margins expanded to 15.4% in 3Q23 (2Q23/3Q22: 7.7/5.3%).

On track with balance sheet de-leveraging. CPIN`s total debt fell to IDR8.7tr in 3Q23 from IDR10.1tr in 2Q23 bringing its net gearing down from 31% to 19%. As such, interest expenses declined (4% q-o-q), providing some support to net profits. This is in-line with the management’s guidance for lower working capital needs as the inventory level declined (down by 22% q-o-q in 3Q23). 

Maintain BUY with a higher TP of IDR7,200. We raised our FY23F/FY24F EBITDA estimates by 11/8% and net profits forecast by 16/12% in consideration of higher revenues in the processed foods business and slightly lower opex from 9M23’s performance. This subsequently lifts our TP to IDR7,200 (from IDR6,700 previously) as we maintain our 18.3x FY24F EV/EBITDA valuation (5-year average) on CPIN.

… Read More 20231101 CPIN