Japfa - CGS-CIMB Research 2020-12-07: Divesting 80% Of Greenfields Dairy

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Japfa - Divesting 80% Of Greenfields Dairy

  • Japfa (SGX:UD2) has entered into a conditional Share Purchase Agreement (SPA) to sell Greenfields Dairy Singapore Pte Ltd (GDS) for a US$295m consideration. GDS holds the vertically integrated branded SE Asian dairy product business.
  • Post deal, Japfa will still own 20% of GDS.
  • We are positive on the deal as valuations are favourable and it frees Japfa’s management to focus on core upstream operations.
  • Reiterate ADD on Japfa.

Japfa entering into SPA to divest Greenfields Dairy Singapore stake

  • Japfa announced that it has entered into a conditional Sale and Purchase Agreement (SPA) with Freshness Holdings Ltd. (Investor) and Freshness Ltd. (the JVCo) for the effective sale of an 80% stake in its subsidiary Greenfields Dairy Singapore Pte Ltd (GDS) which holds Japfa’s “Greenfields” dairy business; a vertically-integrated business from dairy farming to branded dairy products in Southeast Asia.
  • The Investor is owned by affiliates of TPG and Northstar Group.
  • The aggregate consideration for the deal is US$295m, comprising of a cash component of US$236.0m and shares amounting to a 20%-stake in the JVCo.
  • According to Japfa, the US$295m consideration values GDS at c.4x NAV (based on net asset value of US$81.3m as at 30 Sep 2020); and an implied EV/EBITDA of c.21x (based on enterprise value of US$334.72m on FY19 EBITDA of US$16.1m). The group's gain from the disposal is estimated to be US$213.7m.
  • Japfa said the deal was performed to hasten the next phase of development for GDS’s business as the tie-up with TPG and Northstar could bring both funding and senior management expertise to further grow the business.

Positive on deal valuation; frees Japfa’s time for core businesses

  • We like this deal as it was performed at a favourable valuation; above even Japfa’s forward EV/EBITDA. Moreover, Japfa guided it intends to utilise c.US$150m of cash proceeds for a special dividend of 10 cents/share, a significant positive.
  • Japfa believes it could receive US$244.m in proceeds (following the cash of US$236m and repayment of an US$8m shareholder loan by GDS).
  • We like that the 20% stake allows for Japfa to benefit from any upside potential of the business; but more importantly it frees Japfa’s management time to focus on its core upstream businesses that have been performing well.
  • We maintain our forecasts as we think the divested unit has not been a major contributor to the dairy segment’s net profit previously.

Reiterate ADD

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-12-07
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