Japfa Ltd - DBS Research 2016-03-02: Growth drivers intact

Japfa Ltd - DBS Research 2016-03-02: Growth drivers intact  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. 


  • 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 | http://www.dbsvickers.com/ 2016-03-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.90 Same 0.90