TRIS Rating has affirmed the company rating of GFPT PLC (GFPT) at “BBB+” with “stable” outlook. The rating reflects the company’s proven record in the poultry industry in Thailand, its fully integrated poultry operations, and its policy to have company-owned broiler farms. The rating also takes into consideration GFPT’s reliance on the chicken segment, the inherent cyclicality of the 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 on exports of processed chicken products should partially alleviate the volatility in the domestic prices of chicken meat.
Established in 1981 by the Sirimongkolkasem family, GFPT is one of the leading integrated poultry producers in Thailand. The company was listed on the Stock Exchange of Thailand (SET) in January 1992. As of March 2014, the Sirimongkolkasem family held 56% of the company’s shares. GFPT’s full integration covers animal feed, live chickens, fresh, frozen, and cooked chicken products. All broiler breeding stocks and chickens are raised in the company’s own farms. Fully-integrated operations help GFPT’s products meet the food safety and traceability standards required for exported food products. In 2013 through the first six months of 2014, the live chickens and fresh meat segment contributed 46% of GFPT’s total revenues, followed by feed (30%), and cooked products (24%). Revenues from domestic sales contributed 80% of total sales in 2013 through the first six months of 2014, with the remaining 20% 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’s restaurants in Thailand and in other Southeast Asian countries. Nichirei, the partner in GFN, is a Japanese conglomerate with a 21% share of the frozen food market in Japan in 2013. GFPT is the seventh largest exporter of chicken products in Thailand. GFPT’s export volume comprised 4% of the total volume of chicken product exported from Thailand in 2013 while the market share of each joint venture was 3%-4%. During the first six months of 2014, both joint ventures contributed equity income of Bt163 million to GFPT, or about 13.2% of GFPT’s total earnings before interest, tax, depreciation, and amortization (EBITDA).
GFPT’s strategy to focus on processed and cooked chicken products for export helps boost the value of its products. In addition to direct exports, GFPT also supplies cut chicken meat to its joint ventures’ plants for re-export and other processing factories. During 2013 and the first six months of 2014, the combined sales of processed and cooked products, for direct and indirect export, accounted for about 30% of GFPT’s total revenue.
After taking a hard hit in 2012, poultry industry rebounded in 2013 and the first half of 2014. Strong demand for chicken exports, plus a rebalancing of demand and supply in domestic poultry industry, resulted in favorable chicken prices in both the export and domestic markets. GFPT’s total revenues grew to Bt16,699 million in 2013, up by 8.6% from Bt15,370 million in 2012. The rise came on the back of higher chicken prices and volume sold to export markets. GFPT directly exported about 22,461 tonnes of chicken products in 2013, a 24% increase over 2012. In addition, the volume of live chickens sold, mostly of which to GFN, a chicken products exporter, grew 8% in 2013. GFPT’s gross margin jumped to 13.7% in 2013 from 6.5% in 2012. The rise came from a higher contribution from value added export products, higher chicken prices, and lower feed cost. As a result, EBITDA was strong at Bt2,200 million in 2013, up from Bt1,500-Bt1,900 million per year during 2008-2011. For the first six months of 2014, strong export and healthy domestic prices continued to drive GFPT’s earnings. Sales grew by 7.6% over the same period last year (year-on-year or y-o-y) to Bt8,517 million in the first six months of 2014, mainly from higher export prices and sales to GFN. Total processed and cooked products for direct and indirect export rose by 10.4% y-o-y to Bt2,466 million while the volume of processed and cooked chicken sold to export related market rose by just 2% y-o-y to 19,391 tonnes. The jump in GFPT’s export volume of fresh chicken meat offset the decline in the indirect export. The demand for fresh chicken meat jumped significantly after EU and Japan allowed imports of fresh chicken meat. Sales to GFN continued to rise by 10.9% y-o-y in the first six months of 2014. GFPT’s gross margin remained strong at 14.6% in the first six months of 2014, compared with 9.5% in the first six months of 2013. The solid margin was attributable to high chicken prices and relatively stable feed cost. EBITDA rose, climbing to Bt1,237 million, up by 55% compared with the same period of last year. The growth in export markets also boosted the operations of GFPT’s joint ventures. GFN and Mckey, its joint ventures, contributed equity income of Bt163 million to GFPT in the first half of 2014, up from Bt93 million in the same period last year. For the remainder of the year, GFPT’s performance is expected to remain satisfactory, underpinned by healthy domestic chicken prices, continued strong demand for exports, and manageable feed cost. The recent food safety problems in China will be another demand driver for Thai poultry products, in addition to the gradual lift of the import restrictions of various countries on frozen chicken from Thailand. The strong export demand will shore up both the operations of GFPT and its two joint ventures.
GFPT’s balance sheet is healthy. The total debt to capitalization ratio improved to 36.1% in 2013, from 49.4% in 2012. As of June 2014, the total debt to capitalization ratio further improved to 34.6%. The improvement came mainly from rising profitability, lowering working capital needs, and limited capital expenditures. The funds from operations (FFO) to total debt ratio was healthy at 61.8% in the first six months of 2014.
During 2014-2016, capital expenditures are set at Bt1,000 million per year. GFPT’s expenditures will be mainly for the expansion of its breeding and broiler farms. EBITDA is expected to be Bt2,500-Bt3,000 million per year, and thus the capital expenditures can be financed mainly by operating cash flow.
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