SINGAPORE (July 5): DBS is reiterating its “buy” call on Japfa with a target price of 88 cents given a more stable outlook for the poultry industry in Indonesia.
That’s because the local government will now be involved in regulating the supply of poultry.
With the enactment of Ministry of Agriculture’s Regulation No. 61/2016, the culling programme can now be carried out regular basis.
To be sure, Japfa’s share price has dropped by 45% from its high of $1.06 in February before recovering slightly.
The drop in share price YTD was due to fear of oversupply in Indonesia, a crash in the Vietnam swine market and weak 1Q17 performance.
The “disappointing” first quarter results from Japfa were believed to be caused by lower broiler ASP and high employee compensation on bonus payment from its stellar 2016 performance.
DBS believes the overall drop has more than reflected the current situation and does not justify the potential earnings delivery of the company.
DBS now expects Japfa’s 2Q17 performance to improve on higher margins and lower operating costs.
“We are more bullish on the Indonesia industry outlook and earnings delivery on the back of more stability,” says the research team.
Shares in Japfa are trading at 66 cents as of 11.20am.