巴克莱-美股-农业行业-美国农业：TSN与JBS欢迎进行新时代-2019.6.21-25页.pdf

Equity Research 21 June 2019 FOCUS Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 18.Restricted-Internal Americas Agribusiness TSN&JBS:Welcome To A New Era We increase our TSN price target to$100,and upgrade JBS to OW with a higher price target of R$26:Diversified animal based protein companies seem set to benefit most from the worsening African Swine Fever(ASF)situation in China and other countries in Southeast Asia.While we believe the impact in 2019 and early 2020 is likely to be limited,we see incrementally more benefits in the medium to longer term for diversified protein companies like TSN and JBS.Taking a second look at ASF it seems out of control:Analyzing the most recent ASF outbreaks in China and particularly in Vietnam,we believe that the virus has gone well out of control of local authorities and,as history shows,eradicating the virus is likely going to take years,if not decades.We estimate that the current impact on global animal-based protein supply should be close to 6%,a level not very easy to replace.This“supply shock”will likely hit in the back-half of 2020 and have significant impact on product pricing in the coming years TSN and JBS with a major footprint in the Americas seem set to benefit most.Dont underestimate the upside potential from alternative meat:While still an underdeveloped category,the alternative meat space in our view presents plenty of opportunities;new and incumbent players could grab 10%of the$1.4tn meat market in 10 years.With TSN just announcing a fully plant based and a“hybrid”offering,we believe the company is likely to grab a significant portion of this market potential.JBS,meanwhile,has announced an alternative meat product launch in Brazil and is set to launch a product in the U.S.later this summer.Upbeat message from TSN management at its recent investor day reaffirms our Top Pick investment thesis:While TSN did not update its FY19 guidance and also did not yet provide an outlook for FY20,we believe industry dynamics(particularly on the back of global supply shortage due to ASF in China)are favorable and should allow TSN to deliver strong growth into next year.We believe the impact from ASF in China will be beneficial to the companys chicken,beef and pork segments in the coming quarters,yet assume some cost pressure in its prepared foods business.JBS to OW as global matters:JBS is the largest global protein company with a major footprint in the U.S.,Australia and Brazil,the three largest protein producing countries in the world.Via its subsidiary PPC,JBS operates in Mexico and the U.K.With such a diversified global footprint,we believe JBS is likely to be more immune than others when it comes to trade restrictions and regional headwinds such as crop,weather or raw material availability.It should also prove a beneficiary when it comes to filling the void from ASF in China,as JBS already generates 15%of revenues in Asia(mainly China).INDUSTRY UPDATE Americas Agribusiness NEUTRAL Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.Americas Agribusiness Benjamin M.Theurer+52 55 5241 3322 BBMX,Mexico Antonio Hernandez+52 55 5241 3323 BBMX,Mexico Barclays|Americas Agribusiness 21 June 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Target EPS FY1(E)EPS FY2(E)Old New Date Price Old New%Chg Old New%Chg Old New%Chg Americas Agribusiness Neu Neu JBS SA(JBSS3 BS/JBSS3.SA)EW OW 19-Jun-2019 21.25 16.00 26.00 63 1.68 1.96 17 1.90 2.37 25 Tyson Foods,Inc.(TSN)OW OW 20-Jun-2019 78.63 85.00 100.00 18 6.10 6.10-6.86 6.86-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|Americas Agribusiness 21 June 2019 3 EXECUTIVE SUMMARY Upgrading JBS to OW;raising PT for JBS and TSN by 63%and 18%,respectively Diversified animal based protein companies seem set to benefit most from the worsening African Swine Fever(ASF)situation in China and other countries in Southeast Asia.While we believe the impact in 2019 and early 2020 is likely to be limited,we see incrementally more benefits in the medium to longer term for diversified protein companies like TSN and JBS.Additionally,we believe that these two will be well positioned to benefit from the trends in alternative meat demand.TSN recently announced the launch of its own pea-based alternative meat offerings,which include not only a plant based product but also a hybrid offering(see:First Look:TSN introduces plant based and blended products,June 13,2019);thus we see TSN among the best positioned companies within the space.Consequently,we increase our TSN price target by 18%to$100/share,reiterating TSN as our Top Pick in the sector.We also upgrade JBS from EW to OW and raise our price target by 63%to R$26.Why we are getting more upbeat because of ASF Analyzing the most recent ASF outbreaks in China and particularly in Vietnam1,we conclude that the virus has gone well out of control of local authorities and,as history shows,eradicating the virus is likely going to take years,if not decades.Yet,our updated assumptions for TSN and JBS reflect limited gains during 2019 and 2020.The main reason behind the limited short term impact is that we believe,while hog herd reduction in China should have significant supply implications,a significant amount of frozen product is still available,mitigating some of the short term supply constraints.Our price target revisions and the upside potential are driven solely by our more optimistic long-term assumptions.For TSN and JBS,we increase our long-term EBIT margin assumption by 25bps to 7.5%and by 50bps to 5.5%,respectively.ASF will dominate headlines for much longer We elaborated on the context of ASF back in April(Americas Agribusiness:Chinas growing swine fever outbreak is set to benefit the U.S.and Brazil;April 11,2019)and,while according to the Chinese authorities the situation has“supposedly been under control”and in recent two months only an additional 100k hogs have been culled,we believe the actual number to be far higher.As of today China has culled 1,133k hogs in an effort to halt the spread of ASF this brings monthly average cullings to about 110k hogs.In contrast,in Vietnam,from mid-February to mid-June cullings have reached 2,600k,or 650k per month(6 times that in China).Prior to the ASF outbreak in China,the domestic hog herd was estimated at slightly over 500mn,while in Vietnam hog herd was estimated to be 30mn hogs.According to executives at TSN,HRL,JBS and BRFS,estimates for China herd reduction range from 150-200mn hogs well above the reported level of 1.1mn currently culled.Putting the numbers into context Assuming 200mn hogs in China have been affected,or simply have been taken out of the current herd,this represents 40%of Chinese pork production,20%of the worlds pork production and 6%2 of the worlds animal based protein production for sure not an easy number to rebuild.The European Union is(behind China)the largest pork producing economic area the EU has on average hog herd of 150mn;in other words:the EU would have to at least double production to fill the void in China.While with a 100mn hog herd in the U.S.,farmers would have to increase hog supply by 150%to make up for the losses in China.The fact that ASF has not been reported on the American continent makes us believe TSN and JBS are best positioned to benefit from the global supply imbalance through their chicken,pork and beef business.Alternative Meat Offerings will be an additional driver As we have highlighted in late May(Global Food:I Cant Believe Its Not Meat,May 22,2019)“meatless”alternatives are becoming a more relevant topic not only for start-ups like Beyond Meat(BYND,not covered)or Impossible Foods(private),but also for large incumbents such as TSN,which has made a foray into this fast growing new food category.JBS has meanwhile announced its launch of alternative protein options in Brazil,but we expect a more global strategy to follow.We believe this is a new era for protein companies The ones to gain most momentum in the alternative meat space and the ones benefitting from likely years of never seen before supply disruption are,in our view,entering a new era:we believe the winners are going to be TSN and JBS.1 ASF Situation in Asia Update,FAO 2 TSN during its investor day quoted a 5%impact,considering approximately 35%of the Chinese pork production being exposed we model a slightly more pessimistic scenario with 40%of the herd being affected.Barclays|Americas Agribusiness 21 June 2019 4 Recap of ASF and its long term implications ASF is a highly contagious disease of hogs,caused by a virus solely affecting members of the hog family(Suidae).Hog mortality is usually close to 100%,but on the positive side the virus cannot affect humans as of today;that said,mutation risks shouldnt be underestimated.The ASF virus can spread very rapidly in hog populations by direct or indirect contact;additionally,it can persist for long periods in uncooked hog products,enabling its introduction into new areas.ASF can spread on fomites,including vehicles,feed and equipment.Figure 1 shows some examples of ASF lifetime.FIGURE 1 ASF survival time in different“hosts”Source:Bloomberg News,based on OIE,M.C.Niederwerder et al,S.Farez et al,K.Davies et al,European Food Safety Authority With China representing 48%of global pork production and 50%of global pork consumption,any internal supply shortage(like the one to be caused by ASF)will have significant implications for global supply/demand balances and very likely result in companies like TSN and JBS benefitting significantly in the medium to long term.It is our understanding that eradicating a“tough”virus like the ASF will likely take years if not decades.That said,we have seen only Spain and Portugal successfully eradicate the virus,yet it took more than a decade to succeed.Despite intensive research,scientists havent yet managed to develop a safe and effective vaccine.Eradication is the best prevention The broadly used swill feeding technique is a major contributor to the spread of the virus,particularly in emerging markets.Swill feeding has been prohibited in most developed markets as a result,yet a full eradication of the virus is a lengthy process.The current outbreak in China started in a small region in the northeast,but due to a lack of transport control and insufficient culling,the virus has spread to other areas and affected most of eastern China and several hog herds,expanding lately into Vietnam.As of today,the Chinese authorities have ordered the culling of approximately 1.1mn hogs,still a negligible number considering China has about 500mn hogs for pork production during any given stage of the lifecycle in stock.We believe the actual number of affected hogs is likely to be much higher,considering a potential lack of reporting of outbreaks by farmers.399140112104606030530050100 150 200 250 300 350 400 450399 days in Parma ham140 days in Iberian hams and Serrano hams112 days in Iberian loins104 days in frozen meat or chilled meat60 days in water at room temperature60 days in canned stew30 days in pepperoni and salami sausage5 days in cooked ham3 days in feces at room temperature3.5 hours at 56C(133F)DaysBarclays|Americas Agribusiness 21 June 2019 5 FIGURE 2 ASF Situation in Asia as of June 2019 Source:Food and Agriculture Organization(FAO),Barclays Research Potential economic impact from ASF in China Based on our estimates,the current cullings in China have caused an economic impact of about RMB1.54bn(assuming a live hog price of 14RMB/kg,average hog weight of 100kg and a total of 1.1mn hogs culled),which is about US$225mn.While still a small amount compared to the size of the pork industry in China,farmers have started to see adverse implications on a micro level,and assuming further ASF outbreaks the impact could easily reach the billion-dollar level soon.That said,we believe that the benefits for pork-producing countries that remain ASF free,such as the United States and Brazil,could be seen sooner rather than later.How the US or Brazil could benefit from ASF in China The U.S.and Brazil are among the largest animal-based protein producing countries in the world.Both countries have material natural resources to support the world with chicken,pork and beef meat,which in the case of pork could become more relevant if the situation in China does not ease.While trading restrictions limit the benefit of direct sales,China is the worlds largest pork producer and its supply does not quite match its growing demand,so we believe countries like the U.S.and Brazil are set to benefit from the growing imbalance in Chinese pork production/consumption.The U.S.and the EU are among the two regions with pork oversupply,which could fill the gap of pork production in China if ASF were to further affect the current herd(Figure 3).Other proteins,such as beef and poultry,could Companies in the U.S.and Brazil could benefit from further outbreaks in China and surrounding countries.Barclays|Americas Agribusiness 21 June 2019 6 also benefit from overall protein demand,and fill the gap in the significant consumption levels of all three proteins in China.As shown in Figure 3,poultry and beef production globally is highest in the U.S.and in Brazil,which bodes well for the likes of TSN and JBS,with an important production footprint in the respective countries and protein categories.FIGURE 3 Selective Regions/Countries animal based protein production/consumption Source:Barclays Research As seen in the Figure 4,the USDA already forecasts U.S.pork exports to increase considerably in 2019 and 2020.As mentioned before,we see minimal impact from ASF in 2019 and a slightly larger impact in 2020,but we expect ASF to have a multi-year effect.Barclays|Americas Agribusiness 21 June 2019 7 FIGURE 4 U.S.pork exports are expected to increase meaningfully Source:TSN,USDA-ERS,Barclays Research Our take If the U.S.and Brazil maintain effective controls at their ports of entry to secure against A