These are the key takeaways from Japfa’s 4Q14 results briefing.

Lower Capex In Indonesia Expected – Management intends to allocate minimal expansionary capex in Indonesia due to a fall in purchasing power and an oversupply of Day-Old Chick. The latter led to a decline in sale prices, particularly in 4Q14.

Day-Old Chick Production Reduced – Management has lowered the production of DayOld Chick by 15%. They did it by reducing density of chick in population and started an early retirement programme for parent chickens. A reduction in supply would potentially help reverse recent price decline trends and trim Japfa’s losses through lower expenses. The capacity remains unchanged.

Synergy In China – Management shared three points of synergy between its dairy and beef fattening businesses in China: 1) The male calves used in the fattening business could be sourced from its dairy operation, 2) Transfer of personnel from the older dairy business to its newer beef business and, 3) The presence and relationship built through its dairy business helped quicken the beef business set up.

Investment Actions

No stock rating or price target provided, as we do not have coverage on Japfa.

Source: Phillip Securities Research - 2 Mar 2015