Japfa Ltd - DBS Research 2017-04-21: Adjusting Our Valuation

Japfa Ltd - DBS Vickers 2017-04-21: Adjusting our valuation JAPFA LTD. UD2.SI

Japfa Ltd - Adjusting our valuation

  • FY17F/18F earnings cut 22%/15% on lower expected contribution from subsidiary Japfa Comfeed.
  • Dairy contribution is trimmed on lower expected raw milk price in China.
  • Recent sell-down is excessive; DOC/broiler prices have recovered.
  • BUY rating maintained.


  • Japfa Limited (JAP) is involved in all major animal proteins across different geographies in Asia’s fast-growing regions. 
  • In this report, we adjusted FY17F/18F earnings to impute lower expected contribution from subsidiary Japfa Comfeed Indonesia (JPFA) due to weaker-than-expected 1Q17 day-old-chick (DOC) and live broiler prices. 
  • Our BUY call is maintained, as we believe the recent sell-down had pushed the counter’s price at a significant discount to its revised sum-of-parts valuation. 

FY17F/18F earnings trimmed by 22%/15%. 

  • In this report, we adjusted our forecasts to account for lower expected contribution from 51%-owned JPFA (mainly from breeding and commercial farm segments – while feed contribution was raised slightly). 
  • Additionally, we trimmed raw milk prices in China slightly and assume negative swine breeding gross margin in Vietnam (swine feed remains profitable). 
  • Changes to our forecasts caused lower margins across the board this year; although these were partly offset by higher DOC and feed volumes in Indonesia vis-à-vis previous forecasts.

Expect more interventions post Lebaran. 

  • Since initial government interventions were announced end of March 2017 to address the oversupply, both DOC and live broiler prices have recovered (according to Arboge.com) in the worst affected areas; while in others, prices have increased further (early part of Lebaran peak season). 
  • We expect the government to take further measures, including parent stock (PS) culling, to address seasonally lower demand after Lebaran.


  • Changes to our forecasts trimmed our SOP-based TP (pegged to FY17F EV/EBITDA) to S$1.00 – from S$1.25 previously.
  • Further upside is possible if government undertakes timely measures to tackle the oversupply.

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/ 2017-04-21
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.00 Down 1.250