• Japfa's 9M18 core net profit (US$74.3m) was slightly above, forming 82%/80% of our/consensus (US$90.7m/S$92m) FY18F net profit.
• Drivers of the improved net profit came from higher EBIT margins for the poultry division and lower interest costs.
• We lift FY18F net profit by 4.1% but maintain FY19- 20F on our conservative margin forecasts.
• Maintain ADD with an unchanged SOP-based Target Price.

Still in Positive Territory

• Japfa's 9M18 core net profit of US$74.3m was up 113% y-o-y (excluding other gains, some forex and bio asset revaluation) due to the Indonesian poultry segment which continued to be buoyed by especially high average selling prices (ASP) for day-old chicks (DOC) and broilers.
• Meanwhile, still-high Vietnam swine prices kept the Animal Protein Other (APO) segment in the black. Lower-than-expected interest costs also helped the bottomline.

PT Japfa Comfeed Continues to Fly on DOC and Broiler Prices

• Japfa's Indonesian poultry arm registered 10% y-o-y growth in 9M18 revenue (US$1.75bn vs. US$1.6bn in 9M17), but 75% y-o-y growth in EBIT largely on higher average selling prices (ASP) for day-old chicks (DOC) and broilers.
• We understand that average 9M18 DOC and livebird prices in West Java jumped 18.5%/26.8%, respectively, due to high demand and constrained supply post the implementation of the ban on the use of antibiotics in poultry feed in Jan 18. Accordingly, 9M18 operating margin also jumped to 11.9% from 7.5% in 9M17.

High Vietnam Swine Prices Kept APO Segment in the Black

• The Animal Protein Other (APO) division reported 9M18 EBIT of US$21.7m (vs. 9M17 loss of US$25.1m), driven by higher Vietnam swine prices. According to Charoen Pokphand Foods (CPF TB, ADD, Target Price: THB27.25), Vietnam swine prices reached VND51.4k/kg in Aug 18 and grew strongly by 38% to an average of VND40.0k/kg in 8M18 (vs. 8M17: VND28.9k/kg).

Dairy Is a Steady Ship; Consumer Segment Still the Weakest Link

• Japfa's dairy 9M18 EBIT grew by 7% y-o-y, largely due to higher milk yields and volumes. This was despite pressure on margins (-1.7% pts y-o-y) due to higher raw material costs resulting from the weaker Chinese yuan.
• Japfa's consumer segment continued in the red, reporting 9M18 operating losses of US$13m as its dominant position in the ambient food segment continues to be contested.

Maintain ADD

• We raise our FY18F EPS by 4.1% to account for the higher margins, but keep FY19-20F relatively intact for now in the event that DOC/livebird and Vietnam prices moderate moving forward.
• Maintain SOP-based Target Price of S$0.80.
• Catalysts are higher-than-expected margins across all segments; risks are vice versa.

Source: CGS-CIMB Research - 31 Oct 2018