Is Japfa a good stock to buy at current price for price upside?? What do you think?
I saw these 2 articles posted in another forum,
Japfa - CIMB Initiate with Add rating, sum-of-parts target at S$1.25
We like Japfa&rsquo s market positioning as 1) a clear No.2 in the Indonesian animal
protein market and 2) as one of the early-mover, independent foreign dairy
company, expanding in China&rsquo s upstream dairy sector. We see Japfa is a play on
the rising wages of Asia&rsquo s middle-lower income population and the inevitable
shift of food sources to industrialised farms. The group&rsquo s origins started in
Indonesia. Japfa Tbk (JPFA IJ, IDR1,295, Not Rated) was a single-country,
single-product food staple company. We believe Japfa Ltd&rsquo s leap into China will
turn it into a dual-country, dual product food staple company. With beef and
Indochina set in place to be future growth pillars, we envision Japfa Ltd to be a
truly diversified Asia food staple company in future. We initiate coverage on
Japfa Ltd with an Add rating and a target price of S$1.25, on a SOTP valuation
basis. Japfa has a strong animal protein business in Indonesia and peripheral
emerging markets, but the key earnings catalyst in the next few years is the
rapidly expanding dairy business in China.
With beef and Indochina as future growth pillars, Japfa is set to become
a truly diversified agri-food business that spans the entire value chain,
producing different animal proteins and entrenching itself in Asia&rsquo s most
populous markets. We initiate with an Add, with the roll out of its five farms
in China over the next three years as an earnings catalyst. Our SOP-based
target price implies 15.2x CY16 P/E.
Protein for Asia&rsquo s populous developing countries.
Food consumption patterns show that a person&rsquo s meat intake increases
substantially as his income level rises to the US$2k-6k range. Japfa
produces and sells animal protein in Indonesia (GDP per capita: S$3,375),
Vietnam (US$1,910) and China (US$6,807). It also plans to sell meat
in India and Myanmar. These are Asia&rsquo s most populous developing
nations, where animal protein consumption is already outpacing
GDP growth. In Indonesia, Japfa is the No.2 chicken supplier after CPIN.
Management seems to have a good grasp of the business&rsquo s biggest risk
(disease) and has in-house vaccines to respond to outbreaks. It even supplies
vaccines to CPIN.
Upstream dairy, a sweet spot in China.
The supply shortage in China&rsquo s milk industry badly needs to be resolved.
Since the melamine incident in 2008, buyers have flocked to foreign imports
or established milk retail brands, augmenting their bargaining power
over small dairy farms. Faced with the poor selling price for milk (partly due
to the lack of quality), the small farms sold their livestock to the beef market
as beef prices have tripled in the past six years. Hence, China&rsquo s milk output
growth has stagnated, even as milk demand rose by 5% CAGR since 2008.
Large, industrialised dairy farms (like Japfa) are investing in new capacity as
small farms exit. The large farms form only 15% of the market, their milk
output is of higher quality. They are the answer to both China&rsquo s milk
quality issues and supply shortage.
&ldquo Premiumisation&rdquo of food.
Food scandals will send consumers gravitating to the trusted brands and
big brands will turn to the most consistent, high-quality sources
typically the large-scale industrialised farms. Large farms&rsquo pricing premiums
are a reflection of demand. In our view, the industrialisation of farms is
an inevitable trend.
A meaty proposition. - DBSV
An integrated Dairy, Animal Protein, and Consumer
Foods producer with presence in Asia&rsquo s fastgrowing
markets.
First-mover advantage with premium pricing in
Dairy to drive 53% earnings CAGR in FY13-16F and
offer core ROE of 9.2-11.8% in FY14F-16F.
Japfa is a fully integrated player in a high entry
barrier industry within rising middle-class markets.
Initiating with BUY for 36% upside to S$1.16 TP.
The right segment at the right place. Japfa Limited
(Japfa) has been actively expanding in all of its business
segments not only in Indonesia, but also in China, India,
Vietnam and Myanmar &ndash where per capita demand for dairy,
animal protein and branded consumer foods is still rising.
With over 40 years of track record and significant market
shares in most of its businesses, we expect Japfa to continue
capitalising on Asia&rsquo s demographic dividend. We expect the
group to deliver FY13-16F bottom line CAGR of 53% and
core ROE of 9.2% -11.8% in FY14F-16F.
Structural opportunity. We value Japfa at US$1,651m (or
S$2,039m), based on sum-of-parts valuation, employing
comparative EV/EBITDA multiples. Our TP implies FY15F PER
of 12.5x and PEG ratio of 0.24. Japfa&rsquo s growth will primarily
be driven by capacity expansions in China and Indonesia,
where strong dairy and animal protein demand continues to
drive both volume and prices.
Strong relative positioning. Japfa&rsquo s prospective earnings
growth rate is superior to its peers in Indonesia, thanks to its
fast-growing dairy segment, significant market shares and
brand recognition. Japfa&rsquo s competitive advantage lies in its
bio-security measures, high milk yield, full integration model
(now being replicated across its market presence) and widely
recognised So Good and Greenfields brands.
Initiating with BUY. As the second largest poultry player
and an established branded dairy producer in Indonesia, as
well as a fast-growing dairy farmer in China Japfa is a
beneficiary of Asia&rsquo s growing requirement for animal
protein. We believe the counter remains undervalued at the
current level.
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