SINGAPORE (Jan 30): Following a site visit to Japfa’s farms in Vietnam, analysts are confident that the group is able to survive eventual crisis involving its livestock.
Maybank Kim Eng is keeping its “buy” recommendation on Japfa with a target price of 99 cents.
Over the past decade, protein consumption in Vietnam has increased rapidly, in tandem with its GDP growth.
In a Wednesday report, analyst Neel Sinha says, “We expect growth for the industry going forward to moderate to low-to-mid single digit levels. However, industrialised farming companies should continue to benefit from the bigger opportunity of a market share shift from hybrid and backyard farms that still make up about 65-70% of the industry.”
The site visit has shown that the group has stringent biosecurity practices at its farms, as an immediate concern in Vietnam is the risk of African Swine Flu (ASF) being transmitted from China.
The first line of defence in the farms isolation, with the farms located far away from the city. The second line of defence involved minimising carrier contact risk at the farm. The animal stock is also spread in small batches across numerous isolated barns for biocontainment in the event of any outbreak.
Japfa has also tied up with Hypor, a supplier of swine genetics, allowing it to source the best gene pool for biologically balanced and economically profitable stock.
“It is a combination of this focus on genetics and other productivity measures that allow JAP to be amongst the lowest cost producers in the market (and hence more resilient to protein price cycles),” says Sinha.
“We expect Indonesian elections, IDR, commodity prices to provide continued tailwinds to JAP’s stock price,” adds Sinha.
On the other hand, RHB Research believes that Japfa could see a stronger FY19 result, given stronger-than-expected live bird prices in Indonesia, while Vietnam live hog prices remain firm.
In an unrated report on Tuesday, analyst Juliana Cai says, “The ASF outbreak is likely to lead to a further decline in global live hog supplies and tighten pork import policies. We believe this will keep international live hog prices elevated.”
Japfa’s Indonesian-listed subsidiary, Japfa Comfeed, is RHB’s preferred pick for the Indonesia poultry sector.
As at 12.40pm, shares in Japfa are trading at 82 cents or 1.8 times FY19 book with a dividend yield of 1.2%.
