Japfa - Recovery In ASPs Could Bode Well
- We expect Japfa (SGX:UD2) to benefit from a continued recovery in demand for various animal proteins, especially given that key ASEAN economies that Japfa operates in, such as Indonesia and Vietnam, are expected to see healthy GDP growth above 5% in 2022.
- In the latest price data provided by Japfa (SGX:UD2), we observe that prices of broiler and day-old-chicks (DOCs) in Indonesia remained resilient in Jul following a seasonally weaker 2Q22 due to lower demand post Lebaran in Indonesia, dispelling our concerns over the weak DOC prices in May, which could have impacted future broiler prices. Although prices of soybean meal, a key feed ingredient, is back to an all-time high, we think that profitability for Japfa’s Indonesia poultry business should remain intact with better ASPs and similar cost base compared to 1Q22, the previous high for raw material prices.
- Recovery in Animal Protein – Others (APO) segment has been a drag on earnings as the resurgence of African Swine Fever (ASF) in Vietnam in late-4Q21 led to weak swine prices that extended into 2Q22, exacerbating the impact of cost inflation from higher feed and biosecurity costs. However, swine prices have rebounded in 3Q22, supportive of a turnaround in profitability in 2H22F, which should also benefit Japfa as one of the most cost-efficient farmers in the industry.
- For its China dairy business, resilient raw milk prices at above RMB4.10/kg, along with higher sales volume in 1H22 from better milk yields and a larger dairy herd population from the acquisition of two new farms from Fonterra in 2Q21, helped partially offset the impact of rising costs of feed ingredients such as alfalfa . Nevertheless, further rises to alfalfa costs could wear down the resilience of the China dairy business.
- Our SOP-based target price of S$0.81 for Japfa is unchanged, although we are cognisant of the 6-month validity of the listing application for its China dairy subsidiary, AustAsia Investment Holdings (AIH), on HKEX, which will expire on 29 Sep 22 and needs to be renewed.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
TAY Wee Kuang CGS-CIMB Research | https://www.cgs-cimb.com 2022-09-01 2022-09-01
Previous report by CGS-CIMB:
2022-07-29 Japfa - Adjusting To Ongoing Headwinds
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