Thai Vegetable Oil:1QFY16net profit seen down slightly y‐y but strong growth q‐q

　　1QFY16 net profit to be Bt466mn, down 6% y‐y but notable growth y‐y.

　　We expect sales volume to grow 18% y‐y on stronger demand from manufacturers andconsumer but average selling price would decline by 6%‐7%. Sales volume of soybean mealwould rise 7% on higher livestock farming and moderate import of soybean meal, whileaverage selling price would edge down 2%. Total sales are forecast to increase 3% y‐y and6% q‐q to Bt7,023mn and gross margin would widen slightly y‐y but notably q‐q on lessenedcompetition. SG&A expense would rise as TVO launched promotion campaigns to boostsales and logistics expense seems to grow on higher sales volume. In the period, we expectTVO to record extra gains of Bt54mn from a reversal of asset impairment loss and FX gains.

　　Net profit thus would be Bt466mn, down 6% y‐y but up 137% q‐q.

　　Growing world soybean price to strengthen profitability.

　　According to guidance, key factors to higher global soybean price were: 1) a strongerBrazilian real this year that prompted soybean farmers to hold back their sale following aweaker real last year; 2) building short position by institutional investors which pushedsoybean meal up and then position covering drove soybean price up. Looking ahead, theworld’s soybean price trend is likely to continue to grow given: 1) flood in Argentina thatwould result in delay planting and then potentially causing production losses of around3mn‐5mn tons, and 2) La Nina effect after an end of El Nino likely causing drought in Southand North America, which would result in lower‐than‐expected production and encouragefarmers to grow more maize.

　　Upgrading FY16 earnings forecast by 11%.

　　On heels of rising soybean price that would help widen spread, we raise our FY16 earningsprojection by 11% with sales estimate rising to Bt27,198mn (+5% y‐y) and wider grossmargin. However, TVO’s promotion campaign and potential increase in logistics expensealong with higher sales volume as well as an expanding market into overseas would driveSG&A expense up. As such, net profit would fall 3% to Bt1,845mn.

　　Raising target price to Bt27.50, ‘TRADING BUY’ rating maintained.

　　Although the first‐quarter net profit is expected to decline y‐y, we are growing optimisticabout earnings outlook over course of the year on the back of higher average selling price,which should help boost the top line and then prompting us to upgrade our FY16 earningsforecast. We reiterate a ‘TRADING BUY’ rating on TVO with a target price of Bt27.50.