MHP reports 25% yoy profit drop in 1Q13, USD 1.13 DPS payment

Ukraine’s leading poultry producer MHP (MHPC LI) reported mixed 1Q13 results on May 17. Poultry meat production increased 15% yoy to 103 kt and completely filled the capacity of its Vinnytsia plant that is gradually being commissioned. The company’s chicken sales rose 8% yoy to 92 kt in the quarter, including surge in frozen poultry meat exports to 23.2 kt (a year ago, it reported “almost” 10 kt of exports). The increased export negatively affected the average chicken price: -3% yoy to UAH 16.3/kg. 

The company’s poultry segment (which also includes sunflower oil sales as a byproduct in poultry feed production) increased 7% yoy to USD 265 mln, while segment EBITDA fell 16% yoy to USD 73 mln, mainly on higher fodder costs

MHP’s consolidated revenue increased 2% yoy to USD 304 mln, EBITDA fell 13% yoy to USD 73 mln, and profit declined 25% to USD 36 mln. Meanwhile, MHP’s operating cash flow before working capital changes was USD 86 mln (-20% yoy).

In a separate note, MHP’s board announced the company will pay gross USD 1.13 in dividends per each MHP share/DR (yielding 6%), with the record date being May 22. Dividends will be paid on May 28, the company said. 

Alexander Paraschiy: The 1Q13 results raised our concern on MHP’s ability to sell more chicken meat domestically. The provided data suggests domestic sales of poultry fell 9%, in both qoq and yoy terms (to 69 kt). The company’s greater focus on export markets is important, but its decreasing exposure to a more profitable domestic market looks worrying. 

Moreover, MHP’s sales-to-production ratio of chicken meat decreased to 0.89x in 1Q13, which is noticeably smaller than 0.92x in 4Q12 and 0.96x in 1Q12. The ratio suggests the company had trouble in marketing its products. This phenomenon questions the worthiness of MHP’s further capacity expansion. So far, we believe the company’s marketing trouble is temporary. We will closely monitor this issue in the coming operating updates. 

Nevertheless, we see a high chance that MHP will increase its profit in 2013, driven by its farming segment (which should enjoy better crop yields compared to an extremely dry year in 2012) and the scale effect on further poultry production growth at its new Vinnytsia complex. We also expect the market will reward the company’s relatively generous dividend payment policy.