CGS-CIMB Research is keeping its “add” recommendation on Japfa with a target price of 96 cents.                                                                                            

In Vietnam, swine prices rose to an average of VND80,000 ($4.68) per kilogram in July-August, up more than 100% y-o-y. This, according to analyst Cezzane See, implies a still-strong 3Q2020, with the Animal Protein Other (APO) segment EBIT having already posted an earnings turnaround in 2Q2020, from a loss in 2Q2019.

Meanwhile, raw milk prices in China for 3Q2020 stood at RMB3.7 (75 cents) per kilogram as at Sept 23, up about 3.9% q-o-q and 2.3% y-o-y, lending a positive bias to Japfa’s dairy segment, whose EBIT had already increased by some 21% y-o-y to US$19.6 million in 2QFY2020, compared to US$16.2 million in 2QFY2019.

However, Japfa says that its average 3QFY2020 day-old chick (DOC) prices fell by about 20% to approximately IDR3,300 (30 cents), while average 3QFY2020 broiler prices were down to IDR14,600, 13% lower y-o-y.

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“Our Indonesia team believes weak disposable income in Indonesia due to the ongoing impact of Covid-19 could cap the demand recovery for Indo poultry in 2H20F; moreover the oversupply issue within the broiler industry still exists. We foresee 3QFY2020 and 2HFY2020 prospects remaining weak for this segment,” says See.

On the back of these, the analyst expects Japfa to report a 3QFY2020 EBIT of about US$62 million ($84.1 million), representing a 28% y-oy- increase, led by strong earnings from its APO and dairy segments. Core net profit is also expected to grow by 123.0% y-o-y to US$26.3 million, with the benefits of the higher EBIT being further upheld by lower effective taxes and MI (Indo poultry carries the most leakage).

As at 4.15pm, shares in Japfa are trading 2.3% higher at 66 cents or 0.9 times FY20 book with a dividend yield of 5.7%.