Japfa 1Q20 - CGS-CIMB Research 2020-05-15: Stellar APO & Dairy Mitigate Poultry

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Japfa 1Q20 - Stellar APO & Dairy Mitigate Poultry

  • Japfa's 1Q20 net profit of US$49.9m (+164% y-o-y) was ahead of our/consensus’ forecasts (44.1/41.6% of FY20F) on lower tax and MI expenses.
  • 1Q20 EBIT (+47.1% y-o-y) was strong; led by stellar growth in APO (due to higher Vietnam swine margins) and dairy segments. We lift FY20F EPS.
  • We like Japfa’s prospects for the year. Reiterate ADD with a slightly higher Target Price, still based on 12x FY21F EPS (close to 4-year average mean).

1Q20: Dairy and APO mitigate Indo poultry segment weakness

  • Japfa (SGX:UD2)'s 1Q20 core net profit of US$49.9m was ahead of our and street forecasts (S$113m/S$120m) on lower than expected tax and minority expenses. 1Q20 EBIT of US$87m (+47.1% y-o-y) was boosted by stellar performances in the Animal Protein Other (APO) segment (due to still-high Vietnam swine prices) and dairy segments (due to high China raw milk prices) which mitigated the tepid growth in PT JAPFA (+5.9% y-o-y) that was hit by losses in its Indo broiler segment.
  • The stellar EBIT growth, coupled with low tax expense (as Japfa’s dairy segment attracts minimal taxes, in our view) led to 1Q20 net profit growing by more than 100%.

Vietnam swine prices and China raw milk alright; Indo poultry weak

  • According to Japfa, average Apr 20 prices for broiler/DOC were significantly down to Rp11.1k/Rp1.4k likely on reduced consumer purchasing power with the onset of Covid-19.
  • Based on our ground checks with our Thai team, Vietnam swine prices were still around VND70k/kg in Apr 20. China raw milk prices moderated slightly in Apr 20 to the Rmb3.6/kg levels but were still above the lows of RMB3.5/kg in 2015-18.

Lift FY20 EPS for strong 1Q20 results

  • Management believes Indo poultry prices and prospects could weaken in 2Q20, but this could be mitigated by the still-strong Vietnam swine prices (due to supply shortage issues) and China raw milk prices.
  • We lift our FY20F net profit by 20% to account for the strong 1Q20, and as we adjust our tax and MI expenses lower.
  • We keep FY21-22F EPS largely unchanged as while we reduce finance costs to account for the loan repayment of US$254m, post the completion of the Meiji acquisition of a 25% stake in Japfa’s dairy segment (expected to be completed in Jul 20, see report: Japfa Ltd - RHB invest 2020-04-15: Divesting 25% Stake Of Dairy To Meiji), we have also raised our MI estimates to account for this transaction.

Reiterate ADD with a slightly higher target price

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-15
SGX Stock Analyst Report ADD MAINTAIN ADD 0.960 UP 0.950