Japfa Ltd - DBS Research 2016-10-28: Firing on all cylinders

Japfa Ltd - DBS Vickers 2016-10-28: Firing on all cylinders JAPFA LTD. UD2.SI

Japfa Ltd - Firing on all cylinders

  • 3Q16 core earnings of US$42m was well ahead of our expectations.
  • Results were boosted by contribution from Japfa Comfeed (on gains from sale of Australian cattle, firm DOC/broiler ASP and stronger Rupiah).
  • FY16F/17F earnings raised 40%/32%; TP lifted to S$1.18.
  • BUY call reiterated for 47% upside.

Delivering growth. 

  • Japfa Ltd (JAP)’s FY15-18F EBITDA CAGR of 19% justifies our implied 6.3x forward EV/EBITDA multiple. The stock trades at a significant discount to its Indonesian-listed subsidiary Japfa Comfeed Indonesia (JPFA) despite delivering decent earnings growth from China, Vietnam and Myanmar, where per capita demand for dairy, animal protein and branded consumer foods is still rising.

Strong 3Q16 led to FY16F/17F earnings revisions of 40%/32%.

  • Reported 3Q16 earnings came in at US$48.0m (6-fold increase y-o-y; +8% q-o-q). 
  • Excluding the impact of changes in fair value of biological assets and translation FX gains (losses), 3Q16 core earnings came in at US$42.0m (+51% y-o-y; -13% q-o-q) – far ahead of our expectations on annualised basis – given strong contribution from subsidiary Japfa Comfeed Indonesia (JPFA). 
  • Taking this into account, we raised our ASP assumptions for Indonesian Feed, day-old-chick (DOC), and live broilers, and adjusted margins in cattle feedlot and consumer food higher.
  • Our forecast on Dairy, which delivered 44% y-o-y growth in EBIT (-25% q-o-q due to seasonality) was unchanged. 

BUY rating reiterated for 47% upside. 

  • Based on our revised forecasts, JAP’s EBITDA is projected to expand by 16% to US$464.8m next year (from US$399.8m this year) – driven by continued growth in all segments. 
  • Over the next twelve months we expect resilient demand in Indonesian live broiler and DOCs, further improvements in Consumer Food products through new product launches, better productivity/raw milk price in Dairy segment, as well as lower borrowing costs – as we impute refinancing through new bonds. 
  • We recommend investors to take advantage of the attractive valuations.


  • Our SOP-based TP (pegged to forward EV/EBITDA) is raised to S$1.18 following our earnings revisions. 
  • While JPFA remains the largest contributor, the group’s Dairy and Animal Protein segments outside Indonesia are expected to deliver respectable double-digit growth annually.

Key Risks to Our View

  • JAP’s share price is driven by DOC, broiler and swine prices as well as China raw milk price movements and the USD/IDR exchange rate. 
  • A strong recovery in the group’s ASP and/or Rupiah would boost JAP’s share price higher than our fair value, and vice versa.

Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2016-10-28
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.18 Up 0.970