Japfa - UOB Kay Hian 2021-08-02: 2Q21 Results In Line; Expect Uncertainties From Indonesia & Vietnam

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JAPFA LTD. (SGX:UD2)

Japfa - 2Q21 Results In Line; Expect Uncertainties From Indonesia & Vietnam

• Japfa’s 2Q21 core net profit (grew 25% y-o-y but fell 27% q-o-q) was in line with 1H21 forming 54% of our full-year estimates.
• We expect more uncertainties in 2H21 for two out of three key segments of Japfa, namely Indonesia poultry and Vietnam swine, due to the worsening COVID-19 situation which could impact ASPs. However, China’s dairy business should remain stable.
• We cut our Japfa's 2021F and 2022F earnings per share forecast by 16% and 14% and reduce our SOTP-based target price by 34% to S$0.77. Downgrade Japfa to HOLD.

Japfa's 2Q21 earnings In line with expectations.

• Japfa (SGX:UD2)’s 2Q21 core net profit of US$49.4m (+25% y-o-y /-27% q-o-q) was in line with our estimates, with 1H21 core net profit forming 54% of our full-year raw milk. We expect the China dairy segment to continue to perform well as the raw milk shortage may last for another 2-3 years as more independent fairy farmers give up cow-raising.

STOCK IMPACT

• Indonesia poultry and Vietnam swine segments to face uncertainties due to COVID-19. In Indonesia, the COVID-19 situation worsened in Jun/Jul 2021, and this is likely to impact in China suffered minimal impact from the COVID-19 situation.

EARNINGS REVISION/RISK

• We reduced our core PATMI forecast for Japfa in 2021/2022/2023 by 16%/14%/13% after incorporating weaker ASPs for the Indonesia poultry and Vietnam swine segments.

VALUATION/RECOMMENDATION

• Downgrade to HOLD with a 34% lower SOTP-based target price of S$0.77, which implies 7x 2021F P/E.
• See
  • Japfa's Share Price,
  • Japfa's Target Price,
  • Japfa's Analyst Reports,
  • Japfa's Dividend History,
  • Japfa's Announcements,
  • Japfa's Latest News.
• We reduced the P/E multiple for Indonesia poultry and Vietnam swine from 10x (long-term mean) to 8x (-1 standard deviation below mean) to reflect a more uncertain outlook.

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/ 2021-08-02

SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.77 DOWN 1.170