Japfa - CGS-CIMB Research 2021-04-07: The Farm Is Still Alright

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Japfa - The Farm Is Still Alright

  • Indonesia poultry prices and China raw milk prices have continued to rise y-o-y, while Vietnam swine prices were still above VND70k/kg in Jan-Feb 21.
  • We remain positive on Japfa (SGX:UD2) as it has successfully diversified into several business segments that can help mitigate each other’s weaknesses.
  • Reiterate ADD and target price of S$1.18, on unchanged 2022F P/E of 11.5x, close to its 2016-2020 average mean.

Continued government intervention; good for Indo poultry prices

  • According to our Indonesia team, the Indonesian government has proposed the third culling exercise of 2021, to run from 7 Mar to 10 Apr, this time of hatching eggs (HE) as they are still seeing surplus poultry supply. This has helped Indonesian poultry prices stay higher vis-à-vis 2020’s average prices, in our view.
  • According to our channel checks on Arboge, 31 Mar average broiler prices remain high at ~Rp21k/kg (vs. Japfa’s guided Feb 21 average of Rp18.7k and Mar 20 average of Rp16.1k). Arboge’s 31 Mar average DOC prices was ~Rp7.95k/chick (vs. Japfa’s guided Feb 21 average of ~Rp6.9k and Mar 20 average of Rp4.5k). Japfa’s guided prices typically lag behind by a month.

Vietnam swine prices still in high territory

  • According to our Thai analyst who covers Charoen Pokphand Foods (CPF TB), Vietnam swine prices in Jan 21 were VND78.7k/kg and are likely to have been VND75-78k/kg in Feb-Mar 21. This is still above the 2020 average of ~VND75k/kg.
  • According to channel checks, there are still sporadic outbreaks of African Swine Flu globally. Hence, we think FY21F swine prices could remain at least at FY20’s average prices.

China raw milk prices still climbing

  • According to CEIC, China’s end-Mar 21 raw milk prices rose ~15% y-o-y as there is still a shortfall in supply, with downstream China milk producers continually upgrading their product portfolios as the COVID-19 pandemic has stimulated public awareness of improved immunity from a healthy high protein diet and as China’s nationwide herd sizes have not increased in the past 2-3 years.
  • Our China team still expects raw milk prices to rise by ~5% y-o-y in FY21F, lending a positive bias to Japfa’s dairy segment, which saw its dairy EBIT rising ~28% y-o-y to US$114.3m in FY20 (FY19: US$89.2m).

Reiterate ADD; diversification continues to bear fruit

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-07
SGX Stock Analyst Report ADD MAINTAIN ADD 1.180 SAME 1.180