Japfa - CGS-CIMB Research 2021-03-01: A Bountiful Harvest; Prices Still Intact

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Japfa - A Bountiful Harvest; Prices Still Intact

  • Japfa's FY20 net profit surged ~63.3% to US$195.4m, above at 117%/119% of our/ Bloomberg consensus forecasts on stronger 4Q20 Indo poultry EBIT.
  • We gather that Vietnam swine and China raw milk prices are still high. Indo poultry prices recovered in 4Q20. We lift our FY21-22F earnings forecast by 23-28%.
  • Reiterate ADD on Japfa with a higher target price of S$1.18, on slightly lower 2022F P/E of 11.5x (from 12x), close to 2016-2020 average mean.

Japfa's FY20 net profit up ~63% y-o-y

  • Japfa (SGX:UD2)'s 4Q20 EBIT came in at US$127m, beating our estimate of US$87m largely on significantly better Indo poultry EBIT driven by higher margins from its day-old chick (DOC) and live bird segments as prices recovered in 4Q20. This, along with higher other gains took 4Q20 core net profit to US$54.6m (-24.3% y-o-y). See Japfa's announcements.
  • FY20 EBIT rose 7.3% y-o-y to S$363.8.8m while lower effective taxes and MI expenses (due to weaker Indo poultry segment in FY20) helped lift FY20 core net profit to US$195.4m (+63.3% y-o-y).
  • Japfa declared a final dividend of S$0.01 per share besides a special interim dividend of S$0.10 per share post the completion of its Dairy-SEA sale. See Japfa's dividend history.

All prices still intact

  • From our channel checks, we gather that:
    • Vietnam’s average swine prices remain at ~VND75-81k/kg in Jan-Feb 21 (Jan-Feb 20: VND73-82/kg);
    • average China raw milk prices are still high in the range of ~Rmb4.21-4.29/kg in Jan-Feb 21 (Jan-Feb 20: RMB3.70-3.80/kg);
    • in Indonesia, DOC/live bird prices recovered to an average of Rp6k/Rp17.9k in 4Q20 after languishing for most of the year.
  • According to Japfa, prices are still higher y-o-y in Jan 21, with DOC price at Rp6.8k (Jan 20: Rp3.4k) and broiler price at ~Rp19.4k (Jan 20: Rp15.6k).

Lifting FY21-22F earnings forecast

  • The elevated swine and raw milk prices bode well for the near-term outlook of JAP’s Animal Protein Other (APO) and dairy segments.
  • Meanwhile, according to our Indonesian team, the Indonesian government is committed to supporting poultry prices, via periodic culling of lifestock, to bolster the income of independent small farmers during the COVID-19 pandemic. As such, we believe the recovered Indo poultry prices should stay intact.
  • We raise our FY21-22F net profit forecast by 22.9-27.7% to reflect higher Indo poultry and dairy segments as our forecasts were previously too conservative. We also introduce our FY23 financial forecasts.

Reiterate ADD

Company Snapshot: Japfa Ltd

Meet and greet Kevin John Monteiro, Chief Financial Officer of Japfa Ltd as he takes you through the company's financial performance and latest developments.

Posted by CGS CIMB Securities Singapore on Thursday, March 4, 2021

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