Japfa Ltd - CGS-CIMB Research 2020-03-02: 4Q19 In APO We Trust

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Japfa Ltd - 4Q19 In APO We Trust

  • Japfa's 4Q19 net profit of US$72.1m (+171% y-o-y) was a positive surprise led by stellar Indo poultry EBIT (on good feed margins) and higher APO.
  • Vietnam swine prices were still above VND70k/kg in Jan 20. Indo poultry prices are above their lows in FY19. We lift FY20-21F EPS.
  • We think 1Q20F net profit will continue to be strong. Reiterate ADD, with a higher Target Price, still based on 12x FY21F EPS (close to 5-year average mean).

Stellar 4Q saves the day; keeps FY19 net profit relatively flat y-o-y

  • Japfa (SGX:UD2)'s FY19 core net profit of US$119.7m was way ahead of our/street forecasts (S$56.5m/S$60m); saved by a stellar 4Q19. 4Q19 EBIT of US$154.6m (+99.9% y-o-y/221.1% q-o-q) grew on the strong performance in nearly all segments.
  • 4Q19 PT JAPFA EBIT rose 85% y-o-y on better feed margins, as we believe Japfa managed to stockpile raw materials at competitive prices.
  • The Animal Protein Other (APO)’s 4Q19 EBIT rose to US$32.8m, largely spurred by estimated average swine prices reaching c.VND65k/kg in 4Q19.
  • The dairy segment EBIT grew 62% y-o-y due to higher margins on high raw milk prices.
  • 4Q19’s stellar growth took FY19 core net profit to US$119.7m; down 1.8% y-o-y; despite 9M19 net profit being down 50% y-o-y.

Commodity prices still intact in Jan 20

  • Prices in Jan 20 for broiler and DOC were Rp15.6k/Rp3.4k (-11% y-o-y/-47.6% y-o-y), above the lows of Rp14.1k and Rp3.1k, respectively, in Jun 19.
  • Based on our ground checks, Vietnam swine prices were still above VND70k/kg in Jan 20, below the high of VND79k/kg in Dec 19.
  • China raw milk price still seems to be hovering around the Rmb3.8/kg levell.

Lift FY20-21F EPS

  • We think Indo poultry prices are still range-bound due to the active intervention of the Indonesian government to curtail supply. Japfa believes that Vietnam swine prices could stay high, at least in FY20F, as it takes time for the Vietnam swine supply to be rebuilt.
  • We lift our FY20F/21F net profit by 56.3%/50.5%, largely on higher EBIT for Indo poultry and APO segments. We also adjust Japfa’s share base for the recent rights issuance, leading to an uplift of 37.4%/36.0% to our FY20F/21F EPS forecasts.

Reiterate ADD

  • We continue to be heartened by Indo poultry prices that seem to have bottomed in May-Jun 19, as well as the strong Vietnam swine prices as at Jan 20, which bode well for Japfa’s FY20F results; especially that of 1Q20F. We reiterate our longer-term positive view on Japfa and keep our Add call.
  • Our Target Price is lifted to S$0.95 on the heels of the new forecasts, still based on 12x CY21F P/E (close to Japfa’s 5-year average mean).
  • See Japfa Share Price; Japfa Target Price; Japfa Analyst Reports; Japfa Dividend History; Japfa Announcements; Japfa Latest News.
  • Potential catalysts are better poultry and Vietnam swine operating metrics.
  • Downside risks are the reverse, as well as higher corn prices.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-02
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