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CP Foods' Product Shift Proves An Antidote to Bird-Flu Threat (March 706 article)
posted by admin on 02/05/06

Charoen Pokphand Foods, one of Asia's largest chicken exporters, has managed to dodge the worst effects of bird flu by exporting cooked -- rather than raw -- chicken

Charoen Pokphand Foods, one of Asia's largest chicken exporters, has managed to dodge the worst effects of bird flu by exporting cooked -- rather than raw -- chicken. But it may take time for investors to warm up again to the shares.

The Bangkok company reported last week that net profit for 2005 surged to 6.75 billion baht ($173.7 million), more than five times earnings of 1.24 billion baht a year earlier. Revenue increased 24% to 113.37 billion baht from 91.79 billion baht.

Yet the price of chicken has fallen in Thailand, and some investors still might get jitters over putting their money on a poultry company if the deadly strain of bird flu -- which in the past month has turned up in countries as far away as Nigeria and France -- continues to spread, spooking consumers.

Charoen Pokphand Foods' shares are "fully valued now," says Jitra Amornthum, an analyst with Syrus Securities in Bangkok. "The stock is just about the right price."

The shares, traded on the Stock Exchange of Thailand in Bangkok, closed at 5.25 baht each yesterday. That is 40% higher than their level a year ago but 19% below their 52-week high of 6.50 baht in September, and 14% lower than they were at the start of 2006. Charoen Pokphand Group, a large conglomerate with interests in telecommunications and retailing and sizable China investments, owns about half of the shares.

Poultry companies have been bracing for the effects of bird flu. Just last week, Pilgrim's Pride Corp., the second-largest poultry producer in the U.S. and Mexico after Tyson Foods Inc., withdrew its earnings forecasts for the second quarter and full year, saying it will make new forecasts in May.

In Thailand, where CP Foods also serves a domestic market, the price of chicken has fallen sharply. From its peak of nearly 40 baht a kilogram last year, the price that farmers get for their chickens has been hovering around 25 baht a kilogram.
"Last year, the chicken price was too good to be true," says Ms. Jitra. "This year, it's going down."

Since it re-emerged in 2003, bird flu has ravaged poultry stocks and infected at least 174 people, of whom at least 94 have died. Four of those deaths occurred in Turkey, and 14 of them in Thailand. The virus hasn't mutated to a form that can pass readily from person to person, an event that could cause a pandemic.

When bird flu was confirmed in Thailand in January 2004, the European Union and Japan, which accounted for 90% of CP Foods' exports, initially banned all chicken imports from the country. CP Foods, which gets about 20% of revenue from exports, got back into those markets by shifting to the sale of cooked products, as the heat from the cooking process kills pathogens. The World Health Organization says poultry is safe to consume if it is properly handled and adequately cooked.

The company also makes higher margins on cooked chicken products, although it doesn't say exactly how much higher. CP Foods is now trying to boost its shrimp business to diversify.

That may be a smart move. There are signs that people around the world, fearful of contracting the disease, have already started eating less chicken, driving down demand for the company's core product.

In a recent survey, Synovate, the market research arm of Aegis Group PLC of London, asked 7,040 people in around a dozen countries whether bird flu was affecting their eating habits. In Thailand, 29% of respondents said they were eating less chicken as a result of bird flu. Indonesia and Turkey were the hardest hit, according to the survey, with 44% and 43% of respondents those countries, respectively, saying they had cut their chicken consumption.

Rasmiman Sermprasert, an analyst covering agriculture and food for Tisco Securities in Bangkok, says CP Foods signaled in a conference call in late February that earnings for the quarter ending March 31 may disappoint because of the soft chicken prices in Thailand. The company could also suffer in Turkey, where it operates a poultry farm, she says.

Still, CP Foods might be able to offset the damped demand as customers in some countries turn to its cooked chicken exports, putting producers like France, which last month confirmed its first case of avian flu, at a disadvantage.

And despite uncertainty over what will happen with avian influenza, some analysts contend shares of CP Foods are a relatively good long-term bet, even if the stock price remains static for the next few months.

One attraction, they say, is substantial dividends. In 2005, CP Foods paid out 0.5 baht a share, representing a yield of more than 9%. "It's something you can hold for the long term," says Ms. Rasmiman, whose 12-month target price is 6.90 baht -- 31% above yesterday's close.

Write to Nicholas Zamiska at

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