Japfa - UOB Kay Hian 2022-03-03: 2021 Results In Line; Uncertainties From Vietnam Remain

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Japfa - 2021 Results In Line; Uncertainties From Vietnam Remain

  • Japfa (SGX:UD2)’s 2021 core net PATMI of US$133m (-32% y-o-y) was in line, forming 103% of our full-year forecast. Performance from the Indonesia poultry segment improved as lockdowns eased while the Vietnam operations continue to experience weakness from low ASP and high feed cost. Its China dairy segment continued to deliver a stable performance.
  • We cut our 2022 EPS by 19% to account for weakness from Vietnam.
  • Maintain HOLD call on Japfa with SOTP-based target price of S$0.63.

Japfa's 2021 results within expectations.

  • Japfa’s 2021 core net profit of US$133m (-32% y-o-y) was within our expectations, forming 103% of our full-year forecast. Revenue rose 20% y-o-y to US$4.6b, partially mitigating the drop in profit margin (-2.2ppt) resulting from higher feed raw materials costs.
  • Recovery for Japfa TBK but weak performance in APO continues. As lockdown eased in Indonesia and prices recovered in 4Q21, Japfa TBK reported core PATMI of US$18.3m, reversing a loss position of US$4m in 3Q21.This brings full-year core PATMI for the segment to US$70m (+51% y-o-y). Losses from the Animal Protein Other (APO) segment continued in 4Q21 at US$20.8m, bringing full-year losses to US$14m. African Swine Fever (ASF) resurgence in 4Q21 resulted in an increase in operational costs, while swine fattening prices declined due to pre-emptive sales in the market. The increased pork supply in Vietnam has had a negative impact on swine fattening prices as producers restock.
  • China dairy segment a bright spot with stable earnings. China’s dairy revenue and PAT rose 29% y-o-y and 7% y-o-y respectively with additional contribution from Farm 8 and the 2 newly-acquired farms in Shandong. 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 dairy farmers give up cow-raising.
  • Indonesia poultry and Vietnam swine segments to face uncertainties. In Indonesia, prices of broiler and day-old-chick (DOC) remain volatile. Similarly in Vietnam, movement restrictions are being progressively lifted. That being said, it would take some time for poultry and swine prices to recover.

Japfa - Earnings forecast revision & recommendation

  • We reduced our 2022 core PATMI forecast for Japfa by 19% after incorporating weaker ASPs and lower margin for the Vietnam swine segments while our 2023F earnings remain largely unchanged.
  • We expect 2022 to be a challenging year for the Vietnam swine segment due to the low swine ASP and higher feed raw material costs. As a result, we reduced our core PATMI forecast for the Vietnam swine segment from US$11m to a loss of US$21m. We also introduce 2024F earnings of US$135.9m for Japfa.
  • Maintain HOLD with higher SOTP-based target price of S$0.63, which implies 9.1x 2022F. Suggested entry price: S$0.56.
  • Our slightly higher target price comes as we adjust our net debt in our SOTP-based valuation to reflect sales proceeds from the sale of a 12.5% stake in Austasia.
  • See
  • Catalysts:
    • 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(s).
    • Reversal of rupiah weakness.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-03
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.63 UP 0.600