JAPFA LTD
UD2.SI
Japfa Ltd - Growth drivers intact
- 4Q15 earnings ahead of expectations on strong contribution from Japfa Comfeed
- Dairy 4Q15 EBITDA was also ahead on higher yield, offsetting weak raw milk prices in China
- FY16F/17F earnings raised by 36%/19%; TP unchanged on lower cash forecast; maintain BUY.
4Q15 earnings ahead of expectations.
- Excluding changes in fair value of biological assets (net of tax) and one off gain from bonds buyback, the group posted 4Q15 net earnings of US$34m (+227% y-o-y; +141% q-o-q) – substantially ahead of US$14.5m that was expected.
- For the year, Japfa’s core net profit came in at US$64m (+11% y-o-y) against expectations of US$44m
Japfa Comfeed delivered strong results.
- 4Q15 EBITDA of US$65m (+93% y-o-y; -2% q-o-q) indicated better-than-expected ASP for both DOC and broilers.
- At the same time, the group continued to deliver steady contribution from poultry feed business, despite lower than expected 3.301k MT of output – against our forecast of 3.641m MT.
- The strong results from Japfa Comfeed were partly offset by sequentially weaker contribution from Vietnam, Myanmar and India operations, which collectively booked 4Q15 EBITDA of US$7m (-47% y-o-y; -11% q-o-q).
Growth drivers intact.
- Japfa is forecast to book EBITDA (excluding biological asset gains/loss and FX gains/losses) CAGR of 23% between FY15 and FY18F – mainly driven by higher dairy volumes.
- Japfa intends to double dairy farm production capacity in China by constructing another five farm hubs in Inner Mongolia.
- In the Animal Protein segment, we expect Japfa’s combined regional DOC output to expand less aggressively by 6% CAGR over the same period, given curbs in DOC capacity.
- Demand will continue to be driven by population growth and rising per capita income.
Valuation:
- Our SOP-based TP (pegged to forward EV/EBITDA) is unchanged at S$0.90.
- Japfa Comfeed will remain the largest contributor, although the group’s Dairy segment will increasingly have a more meaningful contribution.
- Our BUY rating for the counter is reiterated.
Key Risks to Our View:
- Japfa’s share price is driven by DOC, broiler and China raw milk price movements and to a certain extent, by USD/IDR exchange rate.
- A strong recovery in the group’s ASP and/or Rupiah would boost Japfa’s share price higher than our fair value, and vice versa.
Ben Santoso
DBS Vickers
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http://www.dbsvickers.com/
2016-03-02
DBS Vickers
SGX Stock
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