SINGAPORE (Oct 30): Japfa, the food and feed producer, is kept at ‘Buy’ by DBS Vickers Securities despite weak purchasing power from its Indonesian consumers.

DBS says that the weak Rupiah would raise Japfa’s feedstock costs, and lift cost of living for Indonesians, dampening their purchasing power. However, the house believes the DOC oversupply situation will balance out and prices to recover as government-mandated nationwide cull of ‘6m parent stock’ is expected to take place in 4QFY15.

Japfa is expected to book EBITDA CAGR of 15% between 2014 and 2017, driven by higher dairy volumes, says DBS. The group plans to double dairy farm production capacity in China by building five more farm hubs in Inner Mongolia.

However, Japfa’s combined regional DOC output in the animal protein segment to expand less aggressively by 5% CAGR in the same period, given DOC overcapacity and weak purchasing power in Indonesia.

“We expect 3Q15 EBITDA to come in between US$70.9-76.0 million (+20-28% y-o-y) and earnings of US$7.4-10.1 million,” says the bank.

Japfa is up 2.6% at 40 cents.