Japfa - UOB Kay Hian 2022-11-02: 9M22 Results Below Expectations; Weakness Across All Sectors

• Japfa’s 9M22 core PATMI of US$66m (-46% y-o-y) was below our expectations, forming 63% of our full-year forecast.
• 3Q22 core PATMI of S$12m fell 58% q-o-q as high feed costs affected both the Indonesia poultry (-45% q-o-q) and China dairy segments (-24% q-o-q). Vietnam continued to incur losses of US$4m in 3Q22 as the resurgence of ASF weakened its swine business.
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Japfa's 9M22 results below expectations.

• Japfa (SGX:UD2)’s 9M22 core PATMI of US$66m (-46% y-o-y) was below our expectations, forming 63% of our full-year forecast. Revenue rose 10.5% y-o-y to US$3.7b, mainly driven by higher sales volume across all segments. Core PATMI weakened as all segments saw higher feed raw material costs and the African Swine Fever (ASF) in Vietnam challenged operations and tightened profitability.
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• On the other hand, losses from the Animal Protein Other (APO) segment widened from a US$2m loss in 2Q22 to a US$4m loss in 3Q22 as the swine business remained weak due to a resurgence of ASF since 4Q21, with swine ASPs depressed by pre-emptive sales in the market.
• Vietnam’s feed and poultry businesses were profitable but unable to cover the weaker performance from swine operations.
• China dairy’s profitability affected by high feed costs. Japfa's dairy revenue from China rose 9% y-o-y for 9M22, driven by higher raw milk sales volumes and additional contribution from Farm 8 and the two recently-acquired farms in Shandong. However, core PATMI for the dairy segment fell 57% y-o-y to US$30m due to high feed costs, which resulted in increased production costs for both dairy and beef operations.

All of Japfa's segments to face uncertainties from higher costs of raw materials and volatile ASPs.

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John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-11-02 SGinvestors.io

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