Analysts from CGS-CIMB and DBS Group Research have maintained their “buy” or “add” calls on Japfa after a better-than-expected 3Q20 showing.
Japfa reported a strong set of 3QFY2020 results with net profit at US$53.1 million ($72.5 million), a jump of 452% y-o-y. This leads to 9MFY2020 attributable profit of US$130 million, which is up almost 5x from US$22.4 million last year,
See also: Japfa reports six-fold surge in 1H20 earnings to US$76.8 mil despite decline in revenue
DBS Group Research analysts Andy Sim and Alfie Yeo increased their target price for the counter to $1.03, up from 82 cents.
They say “the market is missing out” on the group's long-term prospects on growing consumption of animal protein, and its geographical diversification. They also describe the stock - trading at <5x enterprise value to earnings before interest, taxes, depreciation, and amortization ratio (EV/EBITDA) - as a “bargain”.
Sim and Yeo also said high pork prices will act as a further boon, and highlighted that swine prices in Vietnam remain robust at above VND70,000 ($4.12) per kg, due to the outbreak of African Swine Fever (ASF). Supply is also expected to remain tight for the next few years.
While its Indonesia poultry operations are facing headwinds due to the outbreak of Covid-19, they said this would be mitigated by its dairy and swine operations in China and Vietnam.
CGS-CIMB analyst Cezzane See also raised her target price from 96 cents to $1.00, citing “higher Vietnam swine and China raw milk prices”. Vietnam’s swine prices are at about VND70-73,000 per kg in Oct 2020, compared to VND54500 per kg in Oct 2019.
China raw milk prices also are at about RMB3.9 per kg ($0.79 per kg) in Oct 20 vs RMB3.78 per kg in Oct 19 due to ongoing shortage of raw milk in China. “The elevated swine and raw milk prices bode well for the Animal Protein Other (APO) and dairy segments.” See notes.
She also pointed out that CGS-CIMB’s channel checks also revealed better poultry prices in Indonesia for Oct 20, saying average day-old-chick (DOC) prices were at about Rp 5400 ($0.50) and broiler price at about Rp16,000 in Oct 2020.
This is higher than the average 3Q20 DOC and broiler prices of Rp 3300 and Rp 14,600 that were guided by JAP previously. “In our view, this could imply stable EBIT in 4Q20.”
As at 12.21pm, shares of Japfa were trading at 67 cents, with a FY20 price to book ratio of 0.85 and dividend yield of $2.12