Japfa 1Q21 - UOB Kay Hian 2021-05-03: Above Expectation. Outlook Is Positive, With An Expected Turnaround In Indonesia

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Japfa 1Q21 - Above Expectation. Outlook Is Positive, With An Expected Turnaround In Indonesia

  • Japfa’s 1Q21 core net profit grew 36% y-o-y, in spite of the high base in 1Q20. The results were better than expected, forming 31% of our full-year estimates. The beat was mainly due to the strong recovery of the Indonesia poultry segment.
  • Japfa's outlook remains positive for the dairy and APO segments as favourable ASPs continue in 2021. Poultry demand in Indonesia is expected to turn around in 2021 as the vaccination programme is being rolled out and businesses reopen.
  • Maintain BUY on Japfa with target price of S$1.17.



JAPFA'S 1Q21 RESULTS


Above expectations.

  • Japfa (SGX:UD2)’s 1Q21 core net profit of US$67.9m (+36% y-o-y) beat our estimates, forming 31% of our full-year forecast. The better-than-expected results came mainly on the back of the Indonesia poultry segment’s outperformance.

Turnaround in the Indonesia poultry segment.

  • Core PATMI from PT Japfa TBK grew 189% y-o-y to US$31.9m. The segment - which was a drag on earnings in 2020 - has benefitted from the government’s recent culling initiatives to stabilise poultry prices. ASPs of broiler and day-old chicks (DOC) were Rp19,430/kg and Rp6,923/kg respectively in 1Q21, up 17% and 70% on a y-o-y basis.
  • Furthermore, Japfa's management shared that feed margins for both poultry and aquaculture remain healthy despite a rise in raw materials costs at a global level.

Outlook for APO and dairy segment remain positive.

  • Japfa’s Vietnam business continues to deliver a strong performance, making the most of its long-term strategy in swine breeding amid persistent high swine fattening prices due to the supply shortage caused by African Swine Fever (ASF) in the market.
  • Animal Protein Other (APO) revenue and operating profit rose 24.7% y-o-y and 11.8% y-o-y respectively. This was driven by higher fattening volumes ( > 30% y-o-y) resulting from Japfa’s ability to quickly replenish its swine stock coupled with continued elevated swine fattening ASPs.
  • For its dairy business, revenue increased to US$128.9m (6.9% y-o-y) and operating profit grew 12.4% y-o-y to US$26.5m on the back of higher sales volumes and ASPs for both dairy and beef businesses.


STOCK IMPACT


Indonesia poultry segment on better footing.

  • The government’s recent culling initiatives have been successful in balancing poultry demand and supply, as well as stabilising poultry prices in 1Q21. Broiler ASP has continued its positive trajectory in Apr 21 with prices ranging from Rp20,000-23,000/kg.
  • Similarly, DOC prices have remained steady. With the reopening of businesses and deployment of vaccines, poultry demand is expected to pick up gradually in 2021.


EARNINGS REVISION/RISK

  • No change to our current earnings forecast for Japfa.

VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Better-than-expected ASPs for Indonesia poultry, China dairy and Vietnam swine products.
  • Value-unlocking activity such as spinning off the dairy or APO segment.
  • Reversal of rupiah weakness.





John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-03
SGX Stock Analyst Report BUY MAINTAIN BUY 1.170 SAME 1.170



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