Thai CP Foods' Strategy Shift Pays Dividends

Charoen Pokphand Foods, Thailand's largest agribusiness company, expects record profit this year as it benefits from a shift to high-margin products and an overseas expansion, which should mean higher dividends.

A strategic move away from farming to ready-to-eat products, a higher-growth business, has increased the company's margin, President Adirek Sripratak told Reuters in an interview.

"This year should be quite a remarkable year for us in terms of profit and revenue," Adirek said.

"Since the bird flu crisis in 2004, experience tells us that earnings from feed and farming can be very volatile, and in order to be the 'kitchen of the world', we can't rely on just one market."

With the new strategy, revenue from foreign operations would be higher than sales in Thailand in five years' time, he said.

CP Foods ranks among the 2010 Forbes Global 2000 List of the world's biggest companies with $3.4 billion in assets and a market value of $2.8 billion.

It has operations in nine countries including Russia, India, Turkey, Taiwan, Malaysia and China, and counts Britain's Tesco plus Costco in the United States among its big buyers.

It expected net profit this year to grow at least 20 percent from a 2009 record, Adirek said, while sales are set to reach 180 billion baht ($5.6 billion), the highest since it went public in 1987 and up from 168 billion in 2009.

Nine analysts polled by Thomson Reuters I/B/E/S forecast a net profit of 13.3 billion baht this year compared with 10.2 billion in 2009. Revenue was seen up 13 percent at 191 billion.

HIGHER DIVIDEND

CP Foods is expected to report stronger second-quarter results next week, buoyed by a rise in meat prices and record-high shrimp exports, industry analysts said.

It paid a 0.23 baht dividend in the first half of 2009.

Asked if strong earnings in the second quarter would mean an increase in its dividend payout, Adirek said: "If we make more profit, definitely. It's our policy to deliver higher returns to shareholders."

Its dividend policy is to pay out about 50 percent of post-tax profit.

The company's net profit quadrupled in the first quarter, beating market forecasts, thanks to better cost management and higher operating results in its overseas businesses, especially in Turkey, India and Malaysia.

CP Foods, 47.9 percent owned by CP Group, one of Asia's largest agribusiness conglomerates, runs agro-industrial and integrated food businesses divided into livestock and aquaculture segments. Its products range from animal feed to processed foods and ready-made meals under the CP brand.

Unlisted CP Group, part of the empire of Dhanin Chearavanont, one of the wealthiest men in Asia, holds stakes in True Corp, Thailand's third-largest telecom operator, CP All, the country's top convenience store operator through its 7-Eleven shops, and chemical firm Vinythai.

It is looking to buy a chicken business next year in Kenya, where "growth potential is immense" due to its large population and few competitors.

Sitting on at least 15 billion baht in cash and a relatively low debt-to-equity ratio of 0.6, CP Foods is looking to buy stakes in other overseas and local companies, Adirek added.

Its shares have risen 112 percent this year, more than six times the 17.6 percent climb in the broad index.

But analysts said its valuations remained attractive compared with those of regional rivals. It trades at 12 times 2010 earnings, against Indonesia's PT Indofood Sukses Makmur Tbk's 16.2 times and the Asia ex-Japan food product sector's 15.6 times, according to Thomson Reuters StarMine.

The shares were up 0.4 percent at 24.20 baht at the midday break, while the overall market was 0.97 percent higher.

Source: Reuters - 02/08/2010