Japfa Ltd - RHB Invest 2019-01-29: A Visit To Poultry And Live Hog Farms

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Japfa Ltd - A Visit To Poultry And Live Hog Farms

  • We visited Japfa’s poultry and live hog farms in Vietnam last week.
  • JAPFA LTD. (SGX:UD2) is an integrated animal protein player in key emerging Asian countries. Its earnings surged in 2018 largely due to a turnaround in its Vietnam swine business, as well as improved volumes and prices at its Indonesian subsidiary, Japfa Comfeed (JPFA IJ), which is listed on Jakarta’s stock exchange.
  • We estimate livestock prices to remain firm in 2019.

African swine fever (ASF) to keep live hog prices elevated.

  • According to the OECD, after poultry, pork is the second most popular meat. The ASF outbreak is likely to lead to a further decline in global live hog supplies and tighten pork import policies. We believe this will keep international live hog prices elevated.
  • Currently Vietnam, where Japfa’s swine business is located, is unaffected by ASF. We expect firm prices for at least the next six months.

Japfa is well-equipped to survive an eventual crisis.

  • As there is currently no known vaccine for ASF, prevention is key. Japfa’s industrialised farms with its isolated barns and disinfecting procedures, showed strong bio-security controls during our visit. Such industrialised farms would limit losses to an individual barn, should there be a case of outbreak.
  • In contrast, backyard farms would be completely destroyed if only one pig gets infected.

Japfa Comfeed Indonesia (BUY, Target Price: Under Review) is also our preferred pick for the Indonesian poultry sector.

  • Trading at 12x FY19F P/E, our Indonesian poultry analyst believes Japfa Comfeed (JPFA IJ) is a laggard compared to peers. Broiler prices continue to stay elevated in January, with prices at IDR20,000-21,000/kg (flat m-o-m) in farm gate and IDR37,000-38,000/kg (+2% m-o-m) in the wet market.
  • Due to tight supplies, we estimate local corn prices to remain high at IDR6,000/kg until March-April. Our current Target Price for Japfa Comfeed (JPFA IJ) is IDR2,700.

A stronger FY19F.

  • We believe Japfa could see a stronger FY19F result, given the stronger-than-expected live bird prices in Indonesia, while Vietnam live hog prices remain firm.
  • Key risks would include outbreak of diseases that could affect the company’s reputation and overall demand, as well as a higher-than-expected rise in raw material costs.
  • Refer to the PDF report attached for further details on the site visit. 

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-01-29
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998