SINGAPORE (Nov 1): UOB KayHian is maintaining Japfa at “buy” after 3Q18 core net profit beat its Street-high 2018 forecast significantly with 9M18 net profit meting 95% of its and 105% of consensus 2018 forecasts.
Japfa’s core 3Q18 net profit soared 141% from a year ago to strong performances in three key segments: Vietnam swine business under its Animal Protein Other (APO) segment; Indonesia poultry and dairy.
“We raise our 2018-20 core net profit forecasts by 6.6-7.1%. Accordingly, we raise our target price by 9% to 98 cents, implying 12.4x 2018F earnings, a 16% discount to peers,” says UOB analyst John Cheong in a Thursday report.
The APO segment in 3Q18 turned around strongly with earnings of US$9.9 million versus a US$7.3 million loss in 3Q17, mainly due to the Vietnam swine business where prices recovered in 2Q18 to above cost and continued to increase in 3Q18 after more than a year of demand-supply rebalancing after China restricted swine imports from Vietnam.
The Indonesian poultry segment saw 3Q18 core net profit grow 55% y-o-y due to strong profit in breeding operations on higher than expected day old chick (DOC) ASP due to a lack of supply in Indonesia. In addition, commercial farm operations also recorded strong profit due to higher broiler ASP.
The dairy segment reported a 3% y-o-y growth in operating profit from the continued focus on improving milk yields and volumes in China. In contrast, core net profit in the consumer food segment remained mired in losses.
Cheong says the turnaround in the Vietnam swine business should continue due to favourable prices in Vietnam while the poultry segment should continue to benefit from more efficient regulations in Indonesia to manage its supply as well as and more subsidies ahead of the country’s elections in early 2019.
Year to date, shares in Japfa have gone up by roughly a third to 68 cents or 10.5 times FY19F earnings.
