Introduction

Japfa Ltd, a major player in the agribusiness sector, is undergoing significant changes with a proposed privatisation by its majority shareholders. This analysis dives deep into Japfa’s performance, its subsidiaries, and the comprehensive details surrounding its financial and strategic positioning. The report, issued by CGS International, provides insights into Japfa’s valuation, potential spin-offs, ESG efforts, and the recommendation for investors.

Privatisation Proposal and Offer Details

On January 24, 2025, Japfa Ltd (JAP) announced a proposed privatisation by TAC 1 and TAC 2, entities owned by the Santosa and Kolonas families. The offer price is S\$0.62 per share, reflecting a 1.07x 9M24 price-to-book value (P/BV). This valuation is more than two standard deviations above Japfa’s 10-year historical mean, making it a peak multiple offer.

The privatisation would involve acquiring approximately 18.33% of shares not already owned by the majority shareholders. Shareholders representing at least 75% in value of these scheme shares must approve the arrangement. Japfa’s CEO and CFO, who collectively own 4.44% of the shares (or 24.2% of the scheme shares), have already given their irrevocable support for the offer. The long stop date for the scheme arrangement is July 24, 2025.

Analysis of Japfa’s Valuation

The valuation of S\$0.62 per share is fair, given the cyclical nature of the agribusiness sector and Japfa’s volatile profitability. The valuation surpasses Japfa’s historical average P/BV ratio of 0.7x over the past decade. Post-spin-off of its China dairy business, AustAsia Group, in 2022, Japfa’s privatisation could pave the way for a future spin-off of its remaining animal protein segment, APO. This would position Japfa as a holding company managing two listed entities.

Investors seeking exposure to Japfa’s Indonesian poultry business can consider investing directly in its 55.4%-owned subsidiary, PT Japfa Comfeed Indonesia Tbk (JPFA), which contributed 79.6% of Japfa’s 9M24 core net profit. JPFA is listed on the Indonesian Stock Exchange and offers better valuations and liquidity.

Financial Performance and Projections

Japfa’s financial trajectory shows a rebound in profitability post-2024. Key financial metrics include:

• Revenue: Expected to grow from US\$4,429 million in 2023 to US\$4,718 million in 2026.
• Operating EBITDA: Projected to increase significantly from US\$250.6 million in 2023 to US\$512.3 million in 2026.
• Net Profit: A turnaround from losses in 2022 and 2023 to a projected US\$136.8 million in 2026.
• Core EPS: Expected to grow from US\$0.060 in 2024 to US\$0.072 in 2026.

Japfa has also achieved a stellar share price performance, rising by 205% over the last 12 months as of January 2025, benefiting from a consumption upcycle in the agribusiness sector.

ESG Performance

Japfa’s Environmental, Social, and Governance (ESG) efforts are noteworthy but have room for improvement. The company received a combined ESG score of C from LSEG in 2023, with Environmental, Social, and Governance pillar scores of B-, C-, and C-, respectively. Japfa emphasizes waste management, water use, and ethical livestock care. Its sustainability initiatives include:

• Completion of a Life Cycle Assessment (LCA) for its Indonesian poultry operations in 2020, aimed at reducing environmental impact.
• Efforts to obtain an ecolabel or environmental product declaration (EPD) to provide traceability and quality assurance.

Despite these efforts, Japfa’s Environmental score declined marginally in 2023. The company’s commitment to consistent sustainability reporting since 2017 could enhance its ESG scores in the future.

Investment Recommendation

CGS International has raised Japfa’s target price to S\$0.62, aligning with the offer price. However, the recommendation has been downgraded from “Add” to “Hold” following the market’s positive reaction to the privatisation news. Shareholders are advised to accept the offer, as it provides a fair valuation and an opportunity to exit investments at a peak multiple. Key risks include potential delays or withdrawal of the privatisation offer by the joint offerors.

Upside risks include stronger-than-expected profitability from higher poultry and pork prices in Indonesia and Vietnam, as well as reduced costs for key feed materials like soybean meal and corn. Conversely, downside risks involve valuation de-ratings, escalating raw material costs, and declining consumer demand for animal protein.