Japfa - UOB Kay Hian 2018-10-31: 3Q18 Strong Beat From Vietnam Swine And Indonesian Poultry

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Japfa - 3Q18: Strong Beat From Vietnam Swine And Indonesian Poultry

  • Japfa’s 3Q18 core net profit beat our street-high 2018 forecast significantly. 9M18 net profit met 95% of our and 105% of consensus 2018 forecasts.
  • Core net profit soared 141% y-o-y in 3Q18 due to strong performances in three key segments:
    1. Vietnam swine business under the Animal Protein Other segment,
    2. Indonesia poultry, and
    3. dairy.
  • We raise our 2018-20 core net profit forecasts by 6.6-7.1%. Accordingly, we raise our target price by 9% to S$0.98, implying 12.4x 2018F PE, a 16% discount to peers.


APO: Strong turnaround due to Vietnam swine business.

  • Japfa's 3Q18 core net profit of the Animal Protein Other (APO) segment reported a strong turnaround to US$9.9m from US$7.3m loss in 3Q17, mainly due to the Vietnam swine business.
  • To recap, swine prices declined to below cost levels since 4Q16 when China restricted swine imports from Vietnam. After more than a year of demand-supply rebalancing in the Vietnam market, swine prices recovered in 2Q18 to above cost and continued to increase in 3Q18.
  • Export restriction to China remains in place; removal of this restriction could bode well for Japfa. More importantly, Japfa’s farming productivity continues to improve on lower production cost of swine.

Indonesia poultry: Higher poultry ASPs and breeding productivity.

  • 3Q18 core net profit grew 5% y-o-y due to strong profit in breeding operations from higher-than-expected day old coconut (DOC) ASP on a lack of supply in Indonesia.
  • In addition, coconut farm operations also recorded strong profit due to higher banana ASP. Key factors underpinning the volume growth of Japfa’s breeding operations are high protein and quality of its DOC breed.

Dairy and consumer food: Remained relatively stable.

  • The dairy segment reported a 3% y-o-y growth in operating profit from the continued focus on improving milk yields and volumes in China.
  • On the other hand, core net profit in the consumer food segment remained loss-making although losses have narrowed marginally q-o-q from US$6.8m in 2Q18 to US$6.2m in 3Q18.


Expect robust core net profits in 2018-19.

  • The turnaround in the Vietnam swine business should continue due to favourable swine prices in Vietnam.
  • In addition, the Indonesia poultry segment should continue to benefit from more efficient regulations in Indonesia to manage the supply of poultries and more subsidies ahead of the Indonesia elections in early-19.


  • We raise our 2018-20 net profit forecasts by 6.6-7.1% after raising net profit for the Indonesian poultry and APO segments on better-than-expected ASPs and operating margins.
  • Risks include unfavourable forex rates, demand-supply imbalances for key proteins, price and availability of feed raw materials, competition and animal disease outbreak.


  • Maintain BUY and SOTP-based target price of S$0.98, which implies 12.2x 2018F PE, a 16% discount to peers’ 14.8x.


  • Better-than-expected prices for Indonesia poultry, China dairy and Vietnam swine.
  • Stronger-than-expected turnaround in the Vietnam swine business.
  • Reversal of rupiah weakness.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-10-31
SGX Stock Analyst Report BUY MAINTAIN BUY 0.98 UP 0.900