July 10, 2008

Analysts rate Thai feed manufacturer TVO a "good buy"

TVO supplies 28 per cent of the soymeal consumed in Thailand. It has its own brand of soy-based cooking oil, which commands half of the domestic market, and a soymeal and rapeseed-oil plant in China, which contributes 15-17 per cent of the company''s sales revenue.

With tight supply for soy and burgeoning demand for biofuels, there is room for expansion in soyoil and soymeal prices, analysts said.

A survey taken by the Securities Analysts Association last month of ten brokers saw seven recommending TVO as a "buy", with target prices ranging from Bt26.85 to Bt38.90.

TVO''s first-quarter sales amounted to Bt5.86 billion (US$174 million) for a net profit of Bt584.55 million (US$17.36 million).

The company gets 61 percent of sales from soymeal while soyoil contributes 38 percent.

The feed-maker still gets 83 percent of its business from Thailand and 15 percent from China.

Ending inventories, or existing stocks and demand for major crops, especially corn and soy, are likely to reach critical levels, and Thailand would find it challenging to to resolve the "food or fuel" dilemma at this moment, boding well for TVO.

TVO''s sales volume rose quarter on quarter in the second quarter, because of higher demand for soymeal resulting from growing exports of chicken to Japan and the EU.

Second-quarter revenue is expected to jump 50.2 percent on-year to Bt6.1 billion (US$181.1 million) . Based on an assumption of a 16-per-cent gross margin, TVO is expected to see a whopping rise of 133 per cent year on-year in its next quarterly net profit, to Bt585 million (US$17.37 million ).

Tisco Securities has also revised upwards by 20.3 per cent its profit forecasts for TVO for this year and next, to Bt2.34 billion (US$69.5 million ) and Bt2.38 billion (US$70.68 million ) , respectively, and by 26.3 per cent for 2010 to Bt2.92 billion (US$86.7 million), assuming a 6.2-per-cent rise in the price of soyoil.

Brokers expects TVO to achieve sales revenue of Bt21.73 billion (US$645.2 million ) this year, up 19 percent on-year. This year''s earnings estimate for TVO has been revised to Bt1.78 billion (US$52.8 million ), up 42 percent year on year.

Soaring raw-materials prices have prompted soyoil producers to call on the Commerce Ministry to permit a domestic price increases.

With sustained rises in raw-material costs for production of both palm and soybean oil, the Commerce Ministry will eventually allow producers to raise their selling prices, which will drive earnings above expectations, the broker said.

In the first half of the year, Thailand''s soymeal prices rose more than 16 percent to Bt19.20 (US$0.57 )a kilogramme, driven mainly by rising demand for biofuel.