Charoen Pokphand Indonesia (CPIN.IJ Rp 5,150; BUY TP Rp 6,400) Strong 2Q24 earnings on higher sales and margin; 1H24 beat estimates

Stock Code	Last Price	Change	Change %
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Charoen Pokphand Indonesia (CPIN IJ)

Strong 2Q24 earnings on higher sales and margin; 1H24 beat estimates

CPIN booked strong 2Q24 net profit of Rp1.1tr (-7% yoy, +49% qoq), supported by higher feed and DOC margin; 1H24 results beat estimates.
The strong performance was slightly offset by the continuous losses in the processed food business and higher effective tax rate.
We maintain our Buy rating with a higher TP of Rp6,400, reflecting a higher NP FY24-25F est. by 18%-2% due to higher ASP and lower costs.

Lower than our 2Q24 preview on processed food segment and higher tax

CPIN reported a net profit of Rp1.1tr in 2Q24 (-7% yoy, +49% qoq), below our lower-end estimate of Rp1.4tr for 2Q24. The lower-than-expected 2Q24 earnings were caused by the processed food segment, which still reported net losses (versus our net profit estimates) and an effective higher tax rate of 35% during the quarter (deferred tax of c. Rp260bn in 2Q24). Despite this, the 1H24 net profit of Rp1.8tr (+28% yoy) represents 58% of the consensus' FY24 forecasts, i.e., above.

Positive margin on the upstream but processed food remained negative

Despite the 4% qoq decrease in feed revenues (+3% yoy), which we believe was due to the lower ASP, the feed segment recorded an 18% higher operating profit in 2Q24 as the operating profit margin (OPM) increased to 7.3% from 5.9% in the previous quarter. The DOC segment's operating profit (OP) turned positive with an OP of 13.2% in 2Q24 (1Q24/2Q23: -5.8%/-9.2%), while the broiler OPM slightly decreased to 5.4% from 5.7% in the previous quarter. The processed food segment continued to report operating losses of Rp82bn in 2Q24, with an OPM of -2.7%, slightly better than -3.4% in 1Q24 but still down from +7.7% in 2Q23.

FY24/25F NP revised by 18/2%

We raised our FY24/25F net profit forecast by 18/2% on the back of higher margin assumptions. The higher margins reflect a lower feed raw material cost and higher price estimates for DOC and broilers. We expect OPM for DOC/broiler to be positive at 6.6/4.4% in FY24 (from -4.2/-1.1% in FY23).

Maintain Buy rating with a higher TP of Rp6,400

We raised our TP from Rp5,900 to Rp6,400 as we revised our FY24F EBITDA upward by 15% but normalized our EV/EBITDA multiple valuation to 16.3x (-0.5SD of 5-year mean) from 17.5x (mean) as we remain cautious about the processed food business profitability going forward. Risks to our view include lower livebird prices due to a lack of culling amid persistently weak purchasing power and lower-than-expected feed margin.

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