Stronger baht clips export giants

Stringent EU inspection rules also hurt 12-month performance of traditionally strong sector

Unlike last year, listed companies in the SET agribusiness sector are not figuring as prominently in the investor spotlight, mainly due to the appreciation of the baht, food safety concerns and falling world prices.

The sector delivered 20.7% average total shareholder returns (TSR) over one year and 26.3% over five years. Charoen Pokphand Food Plc, which accounts for half of the sector's capitalisation, mirrors the average with an 18% return over one year and 26% over five years.

Chumporn Palm Oil Plc registered the highest one-year TSR at 395%, while Asian Seafood posted a 38% contraction. Over five years, Thai Agri Foods leads the table at 89%, while Thai Denmark Swine Breeder is the lowest at -19%.

A toughened inspection regime in the European Union, one of the main markets for Thai shrimps and chicken, has eroded the revenues of listed food exporters. Early this year, the EU found traces of a banned antibiotic, nitrofuran, in Thai shrimps and chicken.

Analysts at KGI Securities and SCB Securities said shrimp exporters had faced bigger trouble than poultry exporters, resulting in poorer returns by companies such as Surapon Foods (SSF), -14% over one-year, Pakpanang Cold Storage and Kiang Huat Seafoods.

Thailand's exports of frozen shrimps in the first five months of this year totalled 38,419 tons, down by 30% year-on-year, while the value fell by 42% to 12.7 billion baht. Shipments of value-added shrimp products in the period fell 7% to 32,485 tons and the values dropped by 15% to 11.3 billion baht.

Local prices of local black tiger prawns are down by 20% this year due to an oversupply of white prawns.

SSF posted a net loss 32.5 million baht in the first half against a net profit of 115 million in the same period last year. Among the 20 firms in the sector, it was one of six with a negative TSR.

An analyst said SSF had exported less to its major markets in the EU and Japan, with the latter in particular experiencing depressed purchasing power. As well, the company has been hesitant to export shrimps to the EU amid concern that any rejection during the inspection process would damage its reputation. Compounding SSF's problems was a foreign-exchange loss of 10 million baht in the second quarter because of the stronger baht, the analyst said.

``SSF always manages forex improperly,'' the analyst commented.

Adirek Sripatak, chief operating officer of Charoen Pokphand Foods (CPF), said his company's shrimp business had also felt the impact of the tougher EU rules.

Fortunately, the company's chicken exports, a key product, have not been hurt since it met all EU requirements. Tesco, the European Union's largest food retailer, has endorsed the quality of CPF chicken and distributes the company's products throughout Europe.

As well, CPF's domestic sales, which account for 75% of its total revenue, have been improving in line with growing local consumption.

``The strengthening of the baht over past few months has not been a big factor _ I think it is a short-term hindrance,'' said Mr Adirek. ``Anyway, the outlook for shrimp and chicken exports in the rest of this year depends on whether Thai government succeeds in negotiating with the EU commission.''

A KGI analyst recommended CPF due to its high dividend yield of 7.5% and its ability to pay dividends every quarter.

However, the analyst noted that CPF shares would be affected by dilution caused by the future exercise of warrants. CPF posted a net profit of 1.6 billion baht in the first six months, down from 1.7 billion in the same period last year. It paid an interim dividend at 0.12 baht per share for second quarter.

For GFPT, another leading chicken exporter, analysts said they saw a little reason to be optimistic for the second half. GFPT forecast that profits in the second half were likely to be equal to those of the second quarter due to falling chicken prices in the world market.

The Thai Broiler Processing Exporters' Association has reduced its projection of overall shipments for this year to 440,000 tons from 460,000 previously.

The current chicken export price is between US$1,700 and $1,900 a ton, compared with $2,100 to 2,300 a year earlier. Nevertheless, GFPT is still seen as attractive due to its high yield at 12%.

An industry source acknowledged that the SET agribusiness sector was not as appealing at the moment, compared with sectors such as building materials and property, which were finally tapping the local economic recovery.

However, most shareholders who had agribusiness shares kept them to enjoy dividend payments for the long term rather than selling in the short term. _Woranuj Maneerungsee

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