2Q Much Better Than Expected

• Japfa’s 2Q18 profit recovery was stronger than expected, propelled by topline growth in PT Japfa TBK, APO and Dairy divisions combined with margin improvement from cost and yield efficiencies. Only Consumer Food continued to struggle in a very competitive Indonesia market. 
• 2Q18 reported PATMI of USD29.6m turned around from the loss in the prior year and was up 77% q-o-q with 1H18 accounting for c52% of our full year forecast. 
• Maintain BUY with SOTP-based target price of SGD0.86 (unchanged).

PT Japfa TBK Boosted Mainly by ASP and Margins

Subsidiary PT Japfa TBK’s contribution saw c12% y-o-y revenue, 70% EBIT and 74% PATMI growth in 2Q18 from a combination of c15% average y-o-y growth in DOC, broiler market prices, 8% growth in poultry feed volume as well as margin expansion from better poultry feed margin which benefited from lower local corn prices. 

Management also indicate that post-Ramadan poultry sales volumes appear to be holding up better than prior years, suggesting a broader improvement in consumer sentiment in the Indonesian market. 

We do expect some growth moderation in coming quarters as current high DOC, broiler prices will likely normalise and the bonus of feed margin gains may be transient.

Source: Maybank Kim Eng Research - 31 Jul 2018