Japfa - UOB Kay Hian 2020-11-02: 3Q20 Above Expectations, Positive Outlook For 2 Out Of 3 Segments

JAPFA LTD. (SGX:UD2) | SGinvestors.io JAPFA LTD. (SGX:UD2)

Japfa - 3Q20 Above Expectations, Positive Outlook For 2 Out Of 3 Segments

  • Japfa (SGX:UD2)'s 3Q20 results posted a strong beat; core net profit grew 335% y-o-y, with 9M20 forming 103% of our 2020 forecast.
  • The dairy/APO segments continued to perform well, while the Indonesia poultry segment saw a soft performance due to COVID-19. The outlook remains positive for the dairy/APO segments with favourable ASPs in 2020.
  • The Indonesia poultry segment may face challenges, but its contribution is expected to be less significant at 25% of 2020F core earnings.
  • Maintain BUY. Target price: S$0.98.



Strong performance from Japfa's dairy and APO segments due to higher volumes and ASPs.

  • 3Q20 core net profit of Japfa’s dairy segment grew by 46% y-o-y, attributed to the higher y-o-y raw milk prices due to a supply shortage. The Animal Protein Other (APO) segment’s core net profit was at US$26m vs a loss of US$6m in 3Q19, on the back of higher swine fattening prices.
  • On the other hand, Japfa Comfeed Indonesia Tbk (Japfa Comfeed) reported a core net profit decline of 52% y-o-y as broiler and day-old-chick ASPs continued to remain weak due to the challenging COVID-19 environment in Indonesia.
  • We also highlight that the Japfa's consumer food segment, which is typically in a loss-making position, managed to turn around with a core net profit of US$5m as measures introduced following COVID-19 increased the demand for frozen and ambient food products.


Positive outlook, especially for dairy and APO segments.

  • Up to Oct 20, ASPs for China dairy products and Vietnam swine remain at favourable levels. Japfa expects raw milk ASP to remain high due to undersupply in the market. This is a result of a prolonged low ASP environment, which has not incentivised the building of new dairy farms. An increase in supply is likely to take a few years as a new dairy farm built today will start producing only two to three years later.
  • For the Vietnam swine business, ASP is likely to remain favourable as the African Swine Fever (ASF) has wiped out a significant portion of China’s swine supply. Rabobank estimates it will take around five years of restocking for the sector to recover.


Indonesia poultry to face uncertainties.

  • The situation in Indonesia is fluid due to the COVID-19 pandemic. The restrictions over peoples’ movement in Indonesia have reduced purchasing power, which is reflected in the continuing low broiler ASP environment in 2Q20.
  • Nonetheless, as Japfa mainly supplies chicken, which is a staple and affordable protein food, it hopes that the impact will not be drawn out.

We raised our Japfa's core net profit forecasts

  • We raised our Japfa's core net profit forecasts for 2020 (+26%), 2021 (+18%) and 2022 (+18%) as we factor in higher ASPs for Vietnam swine and China raw milk. We expect raw milk ASP to remain high due to undersupply in the market. This is a result of the prolonged low ASP environment, which has not incentivised the building of new dairy farms.
  • An increase in supply is likely to take a few years as a new dairy farm built today will start producing only two to three years later.
  • For the Vietnam swine business, ASP is likely to remain favourable as the ASF has wiped out a significant portion of China’s swine supply.
  • See Japfa Share PriceJapfa Target PriceJapfa Analyst ReportsJapfa Dividend HistoryJapfa AnnouncementsJapfa Latest News
  • Maintain BUY with SOTP target price of S$0.98, which implies 8.7x 2020F PE.





John Cheong UOB Kay Hian Research | Joohijit Kaur UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-02
SGX Stock Analyst Report BUY MAINTAIN BUY 0.980 SAME 0.980



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