Analysts have cut target prices for Japfa following the release of its 1HFY2021 ended June results on July 29.
UOB Kay Hian analyst John Cheong has also downgraded his call to “hold” in an August 2 research note, while CGS-CIMB Research analyst Tay Wee Kuang has maintained his “add” call.
See: Japfa sees 54.3% rise in 1H2021 earnings; expects stronger growth this year
While Japfa’s 1HFY2021 core net profit was in line with Cheong’s estimates, he anticipates more uncertainties for Japfa in 2HFY2021, especially for its Indonesia poultry and Vietnam swine segments, due to the worsening Covid-19 situation, which could impact average selling prices (ASPs).
Weaker ASPs for the Indonesia poultry and Vietnam swine segments had led to respective declines of 25% and 34% q-o-q in the segment’s core patmi for the 2QFY2021.
However, he notes that Japfa’s China dairy segment continued to deliver a stable performance during the quarter and anticipates this to continue. “ We expect the China dairy segment to continue to perform well as the raw milk shortage may last for another 2-3 years as more independent fairy farmers give up cow-raising,” he says.
Cheong has cut his FY2021 and FY2022 earnings per share (EPS) by 16% and 14% respectively, reflecting the weaker ASPs for the Indonesia poultry and Vietnam swine segments.
His target price has been lowered to 77 cents, down from $1.17 previously, based on his sum-of-the-parts valuation. “We reduced the PE multiple for Indonesia poultry and Vietnam swine from 10 times (long-term mean) to 8 times (-1 standard deviation below mean) to reflect a more uncertain outlook,” he says.
CGS-CIMB’s Tay has a more sanguine take on Japfa’s results, noting that volumes across all business segments grew y-o-y and q-o-q, contributing to improved sales turnovers. He also points out that Japfa’s lower margins, driven by higher operating costs and normalised ASPs, were within his expectations.
However, he expects margin compression in FY2021-2023, noting that the worsening Covid-19 situation in Indonesia has cast demand uncertainties in 2H2021, while the Vietnam swine segment is expected to continue having lower margins as the industry recovers from supply shortages in the aftermath of African Swine Fever.
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Nonetheless, he reiterates his “add” call for Japfa. While his forecasts are unchanged, he has a lower target price of $1.06 based on 10 times FY2022 EPS, slightly lower than its five-year historical average of 10.8 times. Upside risks include better margins while downside risks include extended losses from Falcon and worsening margins
As at 2.30pm, shares in Japfa are down 0.5 cents or 0.68% lower at 73 cents.
Photo: Bloomberg
