Japfa - UOB Kay Hian 2021-03-03: 2020 Earnings Beat Expectations; Positive Outlook For 2021; Raise Target Price By 17%

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Japfa - 2020 Earnings Beat Expectations; Positive Outlook For 2021; Raise Target Price By 17%

  • Japfa's 2020 core net profit grew 63.3% y-o-y, forming 115% of our estimates. This excludes an extraordinary gain of US$140.2m from the sale of dairy-SEA. The better-than-expected results came mainly on the back of the strong recovery of its Indonesia poultry segment.
  • The outlook remains positive for the dairy and APO segments as we continue to see favourable ASPs in 2021. We raise our core earnings forecasts for 2020 and 2021 by 23.8% and 26.3% respectively.
  • Maintain BUY on Japfa with a 17% higher target price of S$1.17.

Japfa's FY20 earnings above expectations.

  • Japfa (SGX:UD2)’s 2020 core net profit of US$195m (+63% y-o-y) beat our estimates, accounting for 115% of our forecast. The better-than-expected results came mainly on the back of a stronger-than-expected recovery of its Indonesia poultry segment.

Strong recovery in its Indonesia poultry segment.

  • PT Japfa TBK recorded a strong core PATMI of US$26.2m in 4Q20 at (+7.8% y-o-y), up from US$6.9m in 3Q19, as poultry price stabilised. The recovery in broiler and day-old-chicks (DOC) ASPs was a result of government initiatives to balance the demand and supply dynamics in the poultry industry as COVID-19 measures have reduced the purchasing power of middle and low-income households.
  • Furthermore, a successful procurement during the corn harvest season, coupled with the ability to manage raw materials costs, have boosted poultry feed operating profit margins to 13.6% in 2020, up from 12.4% in 2019.

Positive outlook, especially for dairy and APO segments.

  • The rise in core PATMI of Animal Protein Other (APO) (+156.5% y-o-y) and dairy (+41.4% y-o-y) segments more than offset the weaker performance of its Indonesia poultry segment (-9.7% y-o-y) in 2020. ASPs for both China dairy products and Vietnam swine remain at favourable levels.
  • Japfa expects raw milk ASP to remain high due to an undersupply in the market as a result of 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 only start producing 2-3 years later.
  • For its Vietnam swine business, Japfa imported highly selected pure line breeders from its partner as part of a three-year plan to enhance performance and swine genetics, which should lead to a rise in swine fattening volume in 2021.

Japfa - Earnings revision

  • We raise our core net profit forecasts of Japfa by 23.8% and 26.3% for 2020 and 2021 respectively as we factor in higher swine fattening volume for Vietnam swine, higher ASP for China’s raw milk, and stronger recovery for Indonesia poultry. Core net profit revision for 2021F by segment: Indonesia Poultry (+48%), Dairy (+24%) and APO (+9%).

Japfa - Valuation & Recommendation

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-03
SGX Stock Analyst Report BUY MAINTAIN BUY 1.17 UP 1.000