Broker Name: CGS International Securities
Report Date: October 30, 2024
Overview of Japfa Ltd’s Performance
Japfa Ltd reported a strong financial performance for the nine months ending September 2024, with a core net profit of USD 90.5 million. This was a 93.0% achievement of CGS International Securities’ forecast and 101.5% of Bloomberg’s FY24F consensus estimate, reflecting resilient operations despite sector challenges. Japfa Ltd operates primarily in Indonesia and Vietnam, with significant growth in animal feed, poultry breeding, and swine fattening sectors.
Indonesian Operations: Animal Feed & Poultry Breeding
Profit and Margins
Japfa Ltd’s Indonesian subsidiary, PT Japfa Tbk, recorded a core net profit of USD 23.5 million in Q3 2024. Despite a quarterly decline in average selling prices (ASPs) for broilers and day-old chicks (DOCs) by 11.5% and 22.9%, respectively, Japfa Ltd maintained stable profit margins due to reduced raw material costs and increased sales volumes.
Key Drivers
- Feed Segment: Japfa Ltd’s feed segment in Indonesia maintained a Q3 2024 EBIT margin of 7.9%, supported by lower prices for soybean meal and corn.
- Poultry Breeding Segment: Despite a lower DOC price, Japfa Ltd’s poultry breeding segment sustained a 20.4% EBIT margin, reflecting effective cost controls and demand stability following post-Lebaran festivities.
Vietnam Operations: Swine Fattening Segment
In Vietnam, Japfa Ltd capitalized on high swine prices influenced by the continued impact of African Swine Fever (ASF), which tightened local pork supply. The company’s swine fattening volumes increased, driven by established breeding infrastructure and strict biosecurity protocols, supporting a stable supply chain and profitability.
Operational Highlights
- Higher Swine Fattening Volumes: A steady supply, enhanced by improved biosecurity measures, enabled Japfa Ltd to benefit from a favorable price environment, with continued potential for stable profitability in the swine segment.
- Cost Efficiency: Long-term operational initiatives have helped reduce production costs in the swine segment, supporting Japfa Ltd’s profitability in a high-demand market.
Strategic Outlook and Upgraded Earnings Forecast
Projected Growth and Valuation Adjustment
CGS International Securities upgraded Japfa Ltd’s earnings forecasts for FY24F to FY26F by 25.6%, 37.5%, and 36.7%, respectively. The company’s valuation was also rolled forward to FY26F, with a target price increased to SGD 0.53 from SGD 0.43. Japfa Ltd’s stock re-rating reflects anticipated demand growth in protein consumption, notably in Indonesia and Vietnam.
Government Policy Influence
Japfa Ltd’s growth prospects are expected to be further supported by potential consumption stimulus measures from Indonesia’s newly elected government, aimed at bolstering protein demand and economic stability.
ESG Focus: Advancing Responsible Farming Practices
Japfa Ltd achieved a combined ESG score of C from LSEG in 2023. While it was rated B- for environmental performance, the company has prioritized waste and water management alongside ethical livestock care practices.
Sustainability Initiatives
- Life Cycle Assessment (LCA): Japfa Ltd conducted an LCA of its Indonesian poultry operations, inching closer to achieving an ecolabel and improving its environmental impact across supply chains.
- ESG Reporting: Japfa Ltd began sustainability reporting in 2017, and recent scores indicate an upward trend, positioning it as a key contributor to food security in Indonesia, where it is the second-largest poultry farming entity.
Financial Summary
Japfa Ltd’s financial metrics, as projected by CGS International Securities, indicate strong performance:
- Revenue: Forecasted to reach USD 4.5 billion for FY24F, a 3.7% increase year-over-year.
- EBITDA: Expected to grow to USD 472.7 million in FY24F, demonstrating an EBITDA margin of 10.4%.
- Net Profit: FY24F net profit is projected at USD 120 million, supported by both core and non-core profit improvements.
Shareholder Positioning
Japfa Ltd’s stock performance has shown positive growth:
- Major Shareholders: Rangi Management Ltd holds a 51.8% stake, with other significant shareholders including Morze International Ltd at 15.2%.
- Stock Performance: Over the past 12 months, Japfa Ltd’s stock has seen a price increase of 115.8%, outperforming relative indices by 87.7%.
Key Risks
Despite its positive outlook, Japfa Ltd faces risks that could impact future profitability:
- Economic Downturn: A slowdown could reduce protein consumption, especially in key markets.
- ASF Outbreak: Another ASF outbreak could disrupt operations in Vietnam, potentially leading to one-off losses and a supply chain impact on the swine segment.
Japfa Ltd’s sustained profitability outlook, backed by strong operational results and a favorable market environment, makes it a compelling investment as highlighted in the CGS International report dated October 30, 2024.
