Japfa - CGS-CIMB Research 2021-09-08: Got Milk?

JAPFA LTD. (SGX:UD2) | SGinvestors.io JAPFA LTD. (SGX:UD2)

Japfa - Got Milk?

  • Japfa (SGX:UD2) entered third sales and purchase agreement (SPA) in 10 days to divest of its stake in AustAsia Investment Holdings (AIH), its China raw milk business.
  • A milk supply agreement is tagged to each SPA, where AIH will supply raw milk to the new investors on a five-year rolling basis, renewable annually.
  • Japfa will retain a 62.5% stake in AIH and continue to pursue its ambitions to become China’s largest independent raw milk producer.



3 new investors for Japfa's AustAsia Investment Holdings in 10 days

  • On 7 Sep 2021, Japfa announced the divestment of 5% of its stake in AIH to GGG Holdings Limited, the nominated affiliate of New Hope Dairy (002946 SZ), subject to authorities’ approval. This marks the third divestment in 10 days and a total divestment of a 12.5% stake in AIH to three investors for a total consideration of US$146m, representing a 1.59x price-to-book valuation.
  • The divestment is a follow-up to Japfa’s recent exercise to add strategic milk processors as shareholders of AIH in 2020, where Meiji Holdings (2269 JT) came on board as a strategic partner with a 25% equity stake for a consideration of US$254.4m.


Locking in demand for next five years

  • As part of the respective SPAs, Japfa enters into a milk supply agreement with raw milk to the investors at prevailing market prices in return.
  • Given the persistent shortage of raw milk in China, we do not foresee any early termination of the agreements.


Strengthened financial position, no capital expansion plans for now

  • Proceeds from divestments will be used for general working capital in July.


Strong aspirations supported by well-thought-out plans






TAY Wee Kuang CGS-CIMB Research | https://www.cgs-cimb.com 2021-09-08
SGX Stock Analyst Report ADD MAINTAIN ADD 1.060 SAME 1.060



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