Japfa Ltd - CGS-CIMB Research 2021-04-30: Stellar Indonesia Poultry Prospects

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Japfa Ltd - Stellar Indonesia Poultry Prospects

  • Japfa's 1Q21 core net profit of US$67.9m was a beat at ~35%/33% of our/street’s forecasts of US$193m/US$205m, respectively.
  • Main drivers were a stellar Indo poultry segment on the back of solid feed margins and recovery in 1Q21’s Day-Old-Chick (DOC) and livebird prices.
  • We lift Japfa's FY21F/22F earnings per share forecast by 14.5%/3.7% and target price to S$1.22, on an unchanged target P/E of 11.5x (close to its 2016-20 average mean). Reiterate ADD.

Japfa's 1Q21 net profit up 36% y-o-y

  • Japfa (SGX:UD2)'s 1Q21 EBIT grew to US$149.8m (+83.8% y-o-y) on significantly better 1Q21 Indo poultry EBIT (US$101.4m, +147.3% y-o-y), driven by higher feed margins (as Japfa managed to pass on the higher cost of raw materials) and recovered prices of Indonesia’s day-old chick (DOC) and live bird segments. That, along with continued healthy EBITs for its Animal Protein Other (APO) division (US$20.7m, +11.3%) and Dairy (US$26.5m, +12.3% y-o-y) segments, took Japfa's 1Q21 core net profit to US$67.9m (+36.1% y-o-y).

Prices still intact; pushing volume growth for Vietnam swine

  • From our channel checks, we gather that
    1. average Indonesia DOC/live bird prices are at ~Rp8k/Rp23k levels in Apr 21 (vs. JAP’s guided average Mar 21 prices of ~Rp7k/ Rp20k),
    2. Vietnam’s average swine prices remain at ~VND72k-74k/kg levels in Apr 21 (vs. CPF’s guided average VND75k-78k/kg in Mar 21), and
    3. average China raw milk prices remain at ~Rmb4.24-4.27/kg levels in Apr 21 (vs. average Mar 21 levels of ~RMB4.29/kg).
  • Japfa has also been able to grow its Vietnam swine fattening sales volumes by 33% y-o-y in 1Q21 (as previous swine breeding stock replenishing efforts start to take shape) and we understand that it hopes to maintain that y-o-y growth for the rest of FY21F.

Raising Japfa's FY21-22F EPS forecasts

  • While the sustained high swine and raw milk prices continue to bode well for the near-term outlook of Japfa’s Animal Protein Other (APO) and dairy segments, we think that the consistent poultry segment culling by the Indonesian government signals a turn in the segment’s prospects for FY21F.
  • We raise our FY21-22F PT Japfa Tbk’s margins, which consequently raise our FY21F/22F net profits by 14.5%/3.7%, respectively. We have conservatively opted to keep our FY23F forecasts unchanged for now.

Reiterate ADD

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-30
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