TRIS Rating has assigned the company rating of GFPT PLC (GFPT) at “BBB+” with “stable” outlook. The rating reflects the company’s proven record in the chicken processing industry in Thailand, its fully vertically integrated poultry business, and its policy to have wholly-owned broiler farms. The rating also takes into consideration GFPT’s reliance on the chicken segment, the inherent cyclicality of poultry industry, exposure to disease outbreaks, and changes in import tariffs imposed by importing countries. The “stable” outlook reflects the expectation that GFPT will be able to maintain its competitive position in the Thai poultry industry. The focus in exporting processed chicken products should partially alleviate the volatility in basic chicken meat domestically. GFPT is expected to maintain moderate capital structure and conservative expansion policy to weather the cyclicality of chicken industry.
Established in 1981 by the Sirimongkolkasem family, GFPT is one of the leading poultry integrated producers in Thailand. The company was listed on the Stock Exchange of Thailand (SET) in January 1992. As of April 2013, the Sirimongkolkasem family held 55% of the company’s shares. GFPT is a fully integrated producer of poultry products, covering animal feed, live chickens, fresh, frozen, and cooked chicken products. All broiler breeding stocks and chickens are raised in company-owned farms. Fully-integrated operations help GFPT’s products meet the food safety and traceability standards required for exported food products. During 2008-2012, the live chickens and fresh meat segment contributed 40%-50% of GFPT’s total revenues, followed by feed (30%-35%), and cooked products (20%). Revenues from domestic sales contributed 85% of total sales in 2012, with the remaining 15% derived from export sales. GFPT’s main export markets are Japan and the countries of the European Union (EU).
GFPT has expanded its businesses through joint ventures with foreign partners in order to enhance its export channels. It owns 49% of McKey Food Services (Thailand) Co., Ltd. (McKey) and 49% of GFPT Nichirei (Thailand) Co., Ltd. (GFN). McKey is a supplier of chicken products to McDonald restaurants in Thailand and in the Southeast Asian countries. Nichirei, the partner in GFN, is a Japanese conglomerate firm. Nichirei’s main businesses include processed foods, meat, and poultry products with 20% market share of frozen food market in Japan in 2011. GFPT is the eighth largest exporter of chicken products in Thailand. GFPT’s export sales comprise 3% of the total volume of chicken product exports from Thailand in 2012 whereas the market share of each joint venture was 3%-4%. During the first six months of 2013, both joint ventures contributed equity income of Bt92 million to GFPT, or about 11% of GFPT’s total earnings before interest, tax, depreciation, and amortization (EBITDA).
GFPT’s strategy to focus on processed chicken products for export helps alleviate the volatile nature of the prices of raw chicken meat in domestic market. Almost 100% of GFPT’s exports is cooked products. In addition to direct exports, GFPT also supplies cut chicken meat to processing factories in Thailand and its joint ventures’ plants for export market. During 2012 and the first six months of 2013, the combined sales of processed and cooked products, for direct and indirect export, accounted for about half of GFPT’s total revenue.
The company’s performances have been volatile from 2008 through the first half of 2013. Favorable chicken prices drove gross margin very strong around 15%-17% during 2008 through 2011 from 10%-14% during 2005 through 2007. Sales grew to Bt14,210 million in 2011, an increase of 8.9% per annum during 2008-2011, mainly from the feed segment and export related segments. As a result, EBITDA was strong at Bt1,500-Bt1,900 million per year during 2008-2011 from about Bt500-Bt700 million per year in 2005-2007. In 2012, the poultry industry in Thailand was hard hit by an oversupply situation, soaring grain costs, and minimum wage hike. As a result, GFPT’s gross margin tumbled to 6.5% in 2012. EBITDA fell to Bt696 million in 2012 from Bt1,893 million in 2011. However, GFPT’s operations recovered noticeably in the first six months of 2013. Sales grew by 9.5% over the same period last year (year-on-year (y-o-y)) to Bt7,919 million in the first six months of 2013 because of soaring domestic chicken prices and exports. According to the Thai Feed Mill Association, in the first six months of 2013, average prices of chicken increased to Bt42.2 per kilogram, an increase of 21% y-o-y. GFPT’s export sales jumped 47.1% y-o-y in the first six months of 2013. The gross margin recovered to a near-normal level of 9.7% in the first six months of 2013. EBITDA also rose, climbing to Bt801 million, up by 176% compared with the same period last year. Besides the improved profitability from higher chicken prices and sales, GFN, its joint venture, started to contribute equity income of Bt55 million to GFPT in the first half of 2013 after a loss of Bt151 million in the same period last year. For the remainder of the year, GFPT’s financial performance is expected to remain at a satisfactory level, partly supported by healthy chicken prices and continued strong demand for export. In addition, cost of corn, used in feed production, dropped noticeably due to abundant production during the year. Cost of soybean meal has gradually declined after more production came from major soybean producers worldwide.
GFPT’s leverage is moderate. The total debt to capitalization ratio stayed at 30%-45% during 2008-2011. The leverage level was peak at 49.4% as of December 2012 due to higher working capital needs during the down cycle of poultry industry and investments in GFN, its joint venture. As of June 2013, the total debt to capitalization ratio improved to 40.9%. The improvement came mainly from improved profitability, lower working capital needs, and limited capital expenditures. The fund from operation (FFO) to total debt ratio was healthy at 18.3% (non-annualized) in the first six months of 2013 even though it was lower than 50%-70% during 2008 through 2011.
During 2013-2015, the company’s capital expenditures are set at Bt1,000-Bt1,200 million per year. GFPT’s expenditures were mainly for farm expansion of breeding farms as well as broiler farms. EBITDA is expected to be Bt1,500-Bt2,000 million per year, and thus the capital expenditures can be financed mainly by operating cash flow.
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