• Japfa’s FY18 core net profit (US$104.3m) was above, forming 110.5%/116% of our/consensus (US$94.4m/S$89.8m).
• This was mainly due to slightly lower interest and forex costs. EBIT (US$341.8m) was in-line, up 81% y-o-y on better poultry and swine earnings.
• Japfa is holding an analyst briefing later today.
• Maintain ADD with an unchanged SOP-based Target Price.

A Recovery Year

• JAPFA LTD. (SGX:UD2)’s FY18 EBIT growth of 81% y-o-y was mainly due to
  • a stellar Indonesian poultry segment (US$256m);
  • turn to profitability for its Vietnam other animal protein (APO) segment (US$33.1m) vs. a loss in FY17 on a recovery in swine prices and
  • steady growth (+7.3% y-o-y) in its dairy segment (US$71.8m), which mitigated the losses still seen in its consumer segment (loss of US$16.6m).
• Coupled with lower forex costs, core net profit of US$104.3m (excluding other gains, some forex and bio asset revaluation) was up > 200% y-o-y.

Poultry Grows on DOC Supply Crunch

• PT Japfa TBK’s EBIT grew 63.9% y-o-y, largely due to higher average selling prices (ASP) for day-old chicks (DOC) and broilers given the lack of DOC supply post the implementation of the ban on the use of antibiotics in poultry feed in Jan 18.
• FY18 EBIT margin rose to 10.9% (vs. FY17: 7.3%) with a spike in DOC margins to 22.6% (vs. 12.0% in FY17) and live bird margins to 7.3% (vs. 2.5% in FY17).

APO: When Vietnam Swine Flies

• The Animal Protein Other (APO) division reported FY18 EBIT of US$33.1m (vs. FY17 loss of US$26.9m), driven by operating profit of US$30.9m in Vietnam with swine prices having recovered in the year.
• According to Charoen Pokphand Foods, Vietnam swine prices averaged at VND42.9k/kg in 11M18 (up 51% vs. FY17: VND28.6k/kg).
• Overall, the APO segment turned in EBIT margin of 5.7%, with Vietnam recording an 8.0% EBIT margin (vs. -11.5% in FY17).

Maintain ADD, Analyst Briefing Held Later Today

• We expect key questions to be centred on
  1. sustainability of Indonesian DOC and live-bird prices and thus margins;
  2. outlook for Vietnam swine market given that there have been initial cases of African swine flu in parts of Vietnam and
  3. outlook for Japfa’s consumer division which is still turning losses.
• Maintain SOP-based Target Price of S$0.90.
• Catalysts are higher-than-expected margins across all segments; risks are vice versa.

Source: CGS-CIMB Research - 01 Mar 2019