Most-Exposed Thai Company to China Is Analysts’ Favorite

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In many cases, market participants have ditched companies with big exposure to China as the deadly coronavirus keeps spreading. But in Thailand, the most-exposed company to the Chinese economy is also the most-loved by equity analysts among major stocks.

Charoen Pokphand Foods Pcl is rated “buy” by 24 of the 25 brokerages that track the stock -- the highest proportion for any of the 50 largest publicly traded companies in Thailand, according data compiled by Bloomberg. Most of those recommendations have been re-affirmed the past month, even as the outbreak of a new virus spread across China and beyond.

The agro-industrial giant -- controlled by Thailand’s richest family -- generates about a quarter of its revenue in China, the company’s No. 2 market after Thailand, according to data compiled by Bloomberg. In both nations, CP Foods’ products and services span the entire food chain, from animal breeding and feed production to meat processing and ready-to-eat meals sold at convenience stores.

“CP Foods’ business will be affected to some extent by the slowing demand during this coronavirus crisis,” said Dome Kunprayoonsawad, an analyst at Country Group Securities Pcl. “What makes most analysts still upbeat about this company is the expected jump in earnings performance in many other countries, especially Vietnam.”

Total revenue was 535 billion baht ($17 billion) in the year through September, the most among Thai companies after state energy firm PTT Pcl and CP All Pcl, a retailer also controlled by the Chearavanont family, whose $38 billion fortune ranked No. 13 worldwide in a Bloomberg Billionaires Index report last year on “dynasties.”

Chief Executive Officer Prasit Boondougprasert reiterated the company’s 2020 sales target of 600 billion baht, citing a boost in pork prices and demand in neighboring markets including Vietnam and Cambodia. He didn’t mention the coronavirus in his statement on Feb. 4. The company is scheduled to report its full-year results for 2019 on Feb. 20.

CP Foods shares are up 6.4% this year, compared with a 3.7% drop in the SET 50 Index of Thailand’s biggest companies. The stock has been volatile, though. It tumbled 6.7% on Feb. 3, the biggest one-day drop since August 2015, and recovered most of that the following day, when Prasit affirmed the sales target and said a recent outbreak of bird flu in the Hunan province, unrelated to the new coronavirus, was under control.

Rabobank said that animal-protein consumption in China probably “dropped greatly” in January and early February, with the trend likely persisting at least through March. “However, quick and effective containment of the virus could lead to a rapid bounce back, as experienced after the SARS outbreak in 2003,” said the report by food and agrobusiness analysts including Ping Chew and Michelle Huang.

The Chearavanont ties to China are deep, both in terms of business and ancestry, as most descendants were born in the mainland. Through the primary investment unit, Charoen Pokphand Group Co., the family received business registration number 0001 in 1979 for its feed production and distribution business, denoting the first such license when China opened up to foreign companies. Although many food items are sold under the CP brand, products are also marketed as “Zheng Da” in Mandarin and “Chia Tai” in the Teochew dialect.

The consensus 12-month target price among analysts is 36 baht, 24% higher than the last close. CP Foods’ mission is to be the “kitchen of the world,” through three primary business categories: animal feed; livestock, poultry and seafood farming and breeding; and production of cooked and ready-to-eat meals.

--With assistance from Anuchit Nguyen.

To contact the reporter on this story: Lee Miller in Bangkok at lmiller@bloomberg.net

To contact the editors responsible for this story: John Liu at jliu42@bloomberg.net, Lianting Tu, Cecile Vannucci

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