• Japfa's FY20 net profit surged ~63.3% to US$195.4m, above at 117%/119% of our/ Bloomberg consensus forecasts on stronger 4Q20 Indo poultry EBIT.
• We gather that Vietnam swine and China raw milk prices are still high. Indo poultry prices recovered in 4Q20. We lift our FY21-22F earnings forecast by 23-28%.
• Reiterate ADD on Japfa with a higher target price of S$1.18, on slightly lower 2022F P/E of 11.5x (from 12x), close to 2016-2020 average mean.

Japfa's FY20 Net Profit Up ~63% Y-o-y

• Japfa (SGX:UD2)'s 4Q20 EBIT came in at US$127m, beating our estimate of US$87m largely on significantly better Indo poultry EBIT driven by higher margins from its day-old chick (DOC) and live bird segments as prices recovered in 4Q20. This, along with higher other gains took 4Q20 core net profit to US$54.6m (-24.3% y-o-y).
• FY20 EBIT rose 7.3% y-o-y to S$363.8.8m while lower effective taxes and MI expenses (due to weaker Indo poultry segment in FY20) helped lift FY20 core net profit to US$195.4m (+63.3% y-o-y).
• Japfa declared a final dividend of S$0.01 per share besides a special interim dividend of S$0.10 per share post the completion of its Dairy-SEA sale.

All Prices Still Intact

• From our channel checks, we gather that:
  • Vietnam’s average swine prices remain at ~VND75-81k/kg in Jan-Feb 21 (Jan-Feb 20: VND73-82/kg);
  • average China raw milk prices are still high in the range of ~Rmb4.21-4.29/kg in Jan-Feb 21 (Jan-Feb 20: RMB3.70-3.80/kg);
  • in Indonesia, DOC/live bird prices recovered to an average of Rp6k/Rp17.9k in 4Q20 after languishing for most of the year.
• According to Japfa, prices are still higher y-o-y in Jan 21, with DOC price at Rp6.8k (Jan 20: Rp3.4k) and broiler price at ~Rp19.4k (Jan 20: Rp15.6k).

Lifting FY21-22F Earnings Forecast

• The elevated swine and raw milk prices bode well for the near-term outlook of JAP’s Animal Protein Other (APO) and dairy segments.
• Meanwhile, according to our Indonesian team, the Indonesian government is committed to supporting poultry prices, via periodic culling of lifestock, to bolster the income of independent small farmers during the COVID-19 pandemic. As such, we believe the recovered Indo poultry prices should stay intact.
• We raise our FY21-22F net profit forecast by 22.9-27.7% to reflect higher Indo poultry and dairy segments as our forecasts were previously too conservative. We also introduce our FY23 financial forecasts.

Reiterate ADD

• We continue to be positive on Japfa as it has forecast upgrades, our target price for Japfa rises to S$1.18, now based on 11.5x 2022F P/E (close to its 2016-2020 average mean) from 12x previously.
• Potential re-rating catalysts are better operating metrics for all segments, and higher dividends. The converse are downside risks.

Source: CGS-CIMB Research - 1 Mar 2021