Contrasting fortunes

Chicken and shrimp firms suffer setbacks in Europe but commodity specialists enjoy higher prices

Zero tolerance'' inspections for chemical residues, imposed by the European Union starting in March last year, put a serious dent in the 2002 business performance of listed Thai companies exporting chicken and shrimp.

By contrast, companies dealing in commodities such as rubber and palm oil fared better thanks to higher price in world market.

Among the 20 listed companies in the SET Agriculture sector, Chumporn Palm Oil delivered the highest one-year total shareholder return at 294.51%. Rubber exporter Sri Trang Agro-Industry came second at 81%, followed by animal-feed producer Lee Feed Mill with 77.96% and Thai Rubber Latex with 44.88%. GFPT, the country's second largest poultry exporter, delivered 27.66%.

But only those six companies managed to top the sector's average TSR for the year of 9.16%. Over five years the sector has delivered a healthy 19.99% TSR but the 10-year performance is a modest 3.53%.

Shareholders of Charoen Pokphand Foods Plc (CPF), which accounts for half of the sector's capitalisation of 39.7 billion baht, saw a TSR of -16.37%, though the company has delivered 3.13% over three years and 19.12% over five years.

CPF, dealing primarily in chicken and shrimp, was among the companies that suffered from the EU restrictions, which were only eased last month. Three other seafood companies also fared poorly n the TSR front: Kiang Huat Sea Gull Trading Frozen Food at -30.57%, Sea Horse at -25% and Surapon Foods at -23.88%.

Analysts from Capital Nomura Securities said it was difficult to evaluate overall performance in the Agriculture based on common factors, as in property, for instance, since the companies dealt in different types of commodities.

The analysts said chicken producers such as CPF and GFPT encountered two problems after EU authorities found nitrofurans, an antibiotic banned in meat-producing animals, last march, in Thai shipments.

First, their export opportunities were curbed. Second, they faced price-cutting at home because of the oversupply that resulted from the export reductions. The local price for live chicken averaged at 25 baht a kilogramme last year compared with 30 baht the year before.

A CPF executive admitted that revenues from local sales, which accounted for 75% of the company's total revenues, had taken a hit as a result. There was a further problem in the EU when authorities there classified salted chicken as ordinary frozen chicken, making it subject to higher import duties. Previously, the EU had regarded salted chicken as processed chicken.

The executive said the domestic oversupply problem should ease this year since farmers and producers had now adjusted production capacity to meet real demand.

The analysts said that while shrimp-exporting companies faced export problems linked to chemicals in the EU, they were spared a price war locally. Elsewhere on the export front, particularly in the United States, black tiger shrimp from Thailand face stiffer competition from white shrimp from Latin America.

CPF and the analysts agreed that improvement in the chicken and shrimp industry this year would depend mainly on EU policy. ``There is a positive sign that the EU has mostly relaxed the testing and things are back to normal for shrimp. Unfortunately, the EU has not sent a signal about chicken yet,'' the analyst said.

In the first 11 months of last year, Thailand shipped 112,427 tonnes of poultry to the EU, down 18.9% year-on-year. Frozen shrimp shipments from Thailand in the same period fell 79% in value to 483 million baht and 75% in volume to 1,622 tonnes.

The outlook for palm oil was good, said a Capital Nomura analyst who follows the industry. One reason is that increasingly health-conscious consumers are switching to vegetable oils from fat-based products for cooking. Local consumption of palm oil last year was 430,000 litres, compared with 240,000 litres in 1998.

Supisith Chorruangsak, the finance manager of CPI, said his company's rising share price reflected a better performance last year. World palm oil prices bounced back last year from record lows, while the company also expanded its exports to China.

Mr Supisith acknowledged, though, that CPI shares lacked liquidity, so the company was planning to split par value to improve trading opportunities.

In the rubber industry, moves by Thailand, Indonesia and Malaysia to cut supplies had borne fruit, lifting rubber prices in the world market.

However, the Capital Nomura analyst said the performance of commodity companies such as CPI and STA was tied to how well they managed their inventories. Sometimes, surprisingly, an increase in primary product prices can be a burden to producers.

The analysts concluded that shares of agribusiness firms were interesting for long-term investment because many offered relatively high dividends to attract investors. And since most firms in the sector had food-related businesses, demand would persist regardless of other economic problems. _Woranuj Maneerungsee

Back to index page