Japfa - CGS-CIMB Research 2022-11-02: No Reprieve From Margin Compression

Japfa - No Reprieve From Margin Compression

JAPFA LTD. (SGX:UD2) | SGinvestors.ioJAPFA LTD. (SGX:UD2)
  • Japfa (SGX:UD2)’s 3Q22 revenue grew 10.6% y-o-y to US$1.24bn on better ASPs due to demand disruption from COVID-19 a year ago. See Japfa's earnings announcement dated 31 Oct 2022.
  • On a q-o-q basis, revenue declined marginally by 0.9% as better sales volume across all businesses offset quarterly volatilities in ASPs, especially in the Animal Protein Others (APO) segment. Indonesian poultry also experienced seasonally lower sales post-Lebaran while the observance of Satu Suro dampened dining-out demand.
  • Raw material feed costs continued to escalate, outpacing the increase in revenues. This was exacerbated by weaker selling currencies, such as Rp and VND, as opposed to some raw material prices that are denominated in US$. In particular, the APO segment felt the brunt of the impact due to increased biosecurity costs in response to the spread of ASF.
  • Management notes that raw material prices have yet to stabilise but Japfa will focus on its productivity to control costs. Notably, the EBIT margin of the China dairy business has been resilient as milk yields improved but contribution to Japfa's PATMI in 9M22 fell more than proportionately against 9M21 as a result of a reduced stake.
  • Japfa will be holding an EGM for the approval of its dividend-in-specie for AustAsia Group’s (AAG) shares on 7 November, which will be contingent on AAG’s listing on HKEX. As current market conditions are not conducive for an IPO, we do not see an urgent need for capital that prohibits Japfa from waiting for a more opportune time for an equity fund-raising.
  • We cut our FY22F/23F/24F EPS forecast for Japfa by 20.7%/14.4%/14.0% for lower operating margins from the APO segment that could extend into FY23F.
  • We reiterate ADD rating on Japfa and cut our SOP-based target price to S$0.72. Our target price for Japfa comprises S$0.48 fair value per share in AAG (S$985.5m for its 62.5% stake in AAG) and S$0.24 per share for the remaining animal protein businesses, pegged to 6x FY23F P/E, 0.5 standard deviation below its 5-year historical mean to account for near-term cost headwinds.

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 2022-11-02
SGX Stock Analyst Report ADD MAINTAIN ADD 0.72 DOWN 0.810

Previous report by CGS-CIMB:
2022-09-01 Japfa - Recovery In ASPs Could Bode Well

Relevant links:
Japfa Analyst Report,
Japfa Target Price,

Japfa Share Price History,
Japfa Announcements,
Japfa Dividends/ Corp Actions,
Japfa News Articles


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