Excerpts from analysts' report
CIMB analysts: Kenneth Ng, CFA & Jonathan Seow
Despite a weak 1H (-55% yoy), FY15 core net profit was up 24% yoy. ■ The improved showing was driven by Comfeed Tbk, after industry conditions (day-old-chick and broiler prices) in Indonesia improved in 2H15. ■ Dairy remains operationally strong but continues to be impaired by low raw milk prices. ■ Animal protein other had a flat showing in FY15 but management sees this as the company’s medium to long term pillar of growth. |
Both day-old-chick (DOC) and broiler prices in Indonesia have improved. Photo: RHB4Q results shows continuing signs of turnaround
Japfa continues to show signs of recovery, driven by its Indonesian business (Comfeed). After a weak 1H15, 2H improved on better industry conditions.
Both day-old-chick (DOC) and broiler prices in Indonesia have improved. The government-initiated culling has also taken place, with 10-15% of overall livestock culled over 4Q15, which should further help alleviate the demand-supply mismatch. Consequently, group 4Q operating profit was up 61% yoy and 14% qoq, with Comfeed up 139% yoy and 7% qoq.
Animal protein other (c.36% of core net profit) the next pillar
Japfa’s protein business in Vietnam, Myanmar and India are grouped under this segment. EBIT growth in this segment was flattish in FY15, with growth in Vietnam (+23% yoy) offset by weakness in India (-72%) mainly due to lower selling prices of poultry.
Management views these markets as important medium- to longer-term plays, in part because these are still developing nations and partly because their current low poultry consumption should only grow as wages rise.
Dairy (c.27% of FY15’s core net profit) doing well operationally
At IPO, Japfa’s dairy business was touted to fuel growth for the group, but faced a subdued raw milk price environment which halted growth. However, this part of the business has been operationally strong. FY15 sales volumes improved greatly (+48% yoy) due to higher farm utilization and milk yields, which mitigated the impact of lower milk prices (-c.15% yoy).
Dairy revenue was therefore up 14% yoy, but EBIT was down 14% yoy due to lower margins (FY15: 17.5%; FY14: 23.4%) from lower milk prices.
Trading below historical average
Japfa first re-rated sharply after its positive 3Q15 results and currently trades at 4.9x Bloomberg consensus CY17 P/E, below its historical 10.9x forward P/E.
