Japfa to supply raw milk to China's second-largest dairy producer for five years
By Jamie Lee leejamie@sph.com.sg @JamieLeeBT
2 Jan 8:20 AM
AGRI-FOOD company Japfa Ltd said on Friday its subsidiary, AustAsia Investment Holdings, has entered into a five-year milk supply agreement with Inner Mongolia Yili Industrial Group Co Ltd. Yili is China's second-largest dairy producer by revenue, Japfa said in a media statement.
Still a BUY @ $0.36... so convincing by the analyst... conjob? how can a big company go so wrong in less than 12 months?
(25-09-2014, 04:57 PM)CityFarmer Wrote: Japfa initiated at ‘buy’ with $1.16 target price by DBS
DBS Group Research has initiated coverage of Japfa, the integrated dairy, animal protein, and consumer foods producer, with a “buy” call and a 12-month target price of $1.16, representing an upside of 36%.
The research house says Japfa has been actively expanding in all of its business segments not only in Indonesia, but also in China, India, Vietnam and Myanmar – where per capita demand for dairy, animal protein and branded consumer foods is still rising.
“With over 40 years of track record and significant market shares in most of its businesses, we expect Japfa to continue capitalising on Asia’s demographic dividend. We expect the group to deliver FY13-16F bottom line CAGR of 53% and core ROE of 9.2% -11.8% in FY14F-16F,” analyst Ben Santoso writes in the initiation report dated Sep 25.
“Japfa’s growth will primarily be driven by capacity expansions in China and Indonesia, where strong dairy and animal protein demand continues to drive both volume and prices.” says Santoso. “As the second largest poultry player and an established branded dairy producer in Indonesia, as well as a fast-growing dairy farmer in China; Japfa is a beneficiary of Asia’s growing requirement for animal protein.”
Japfa’s prospective earnings growth rate is also superior to its peers in Indonesia, thanks to its fast-growing dairy segment, significant market shares and brand recognition, adds the research house. DBS values Japfa at US$1.65 billion ($2 billion), based on sum-of-parts valuation, employing comparative EV/EBITDA multiples.
“We believe the counter remains undervalued at the current level,” Santoso concludes.
Hello all. I realized I wasnt the greatest bull on Japfa. In fact, I shorted Japfa. But I believe Japfa today is an attractive opportunity to purchase an above average company at a great price, with the caveat that you have access to shorting indonesian stocks. I will be posting a write up in due course.
I have no time to write a full thesis for you guys...but here is the 30 second pitch.
Buy Japfa, and sell short Japfa's ownership in Comfeed. There is a massive value disconnect here.
On the onset, Japfa looks like a risky, commoditized, value destructive company. However because Japfa owns 57.5% of Comfeed, the financials are consolidated, and true underlying business economics are masked. After striping out Comfeed from the financial statements, Japfa ("Core") is actually a pretty high growth, high margin, value accretive business. The reason why Japfa should be valued using the SOTP method instead of the consolidated method is because all the bad stuff (high debt, value destruction) are non-recourse to the core, and is stuck in Comfeed. Even if comfeed goes bankrupt, core will still do just fine. Going forward, the growth in Core would eventually outpace Comfeed, and the market will be forced to recognize Japfa's value. Even if the market doesn't recognize the value of Japfa soon, we will still be buying a 30% FCFE business that is growing pretty quickly
Even if you have no access to short Comfeed, going long Japfa alone is pretty good. I have a valuation easily north of $0.60-$0.70 SGD per share. If anyone have any questions..feel free to ask.
At $0.485 per share, i recommend cutting exposure on the account of portfolio re-balancing and to adjust for the risk-reward. Additionally, the upside has eroded slightly because of the company's USD debt and USD cost base for Comfeed. There might be a technical selloff on USD strengthening that will allow one to accumulate Japfa at a lower price than it is today. I recommend selling ~75% of position.
KKR will invest US$81.2 million for a 10.44% interest in PT Japfa Tbk
- KKR will take up a 6.57% stake (750 million shares) in PT Japfa TBk via a private placement for US$52.9 million and acquire another 3.87% stake (441 million shares) from Japfa for US$28.3 million
- Post the KKR Investment, Japfa will continue to hold a 51% stake in PT japfa Tbk
06-01-2018, 09:22 AM (This post was last modified: 06-01-2018, 09:23 AM by weijian.)
Moving to right place.
(05-01-2018, 11:58 PM)Kaimin Wrote: Japfa is an interesting company
50% of net income comes from a 51% ownership of PT Japfa Tbk, a listed company on the Indonesian stock exchange which is the 2nd biggest producer of animal feed and chickens (broilers and day old chicks) in Indonesia controlling 21% and 25% of market share respectively
40% of its net income comes from animal protein business in Myanmar, India and Vietnam of which Vietnam is the main contributor
10% comes from a diary business and a consumer foods business
As one of the largest players in the South East Asian animal protein business, Japfa is poised to ride on the growth of its middle class and increasing meat demand. Japfa’s economy of scale and vertical integration can undercut small scale commercial farmers and smaller corporations which still make up large parts of the market, seizing more market share. In 2014 70% of swine in Vietnam was produced by small scale households. In 2017, the largest Indonesian feed player had 31% of market share, Japfa had 22% and the next biggest player had 6%. For Indonesian day old chicks it was respectively 41%, 25% and 8%. In the long term the business will likely see consolidation into a few dominant players like in the US. In the past year the stock has dropped 46%. Why?
In the first quarter of the current fiscal year profit after tax and minority interest (PATMI) dropped by 91% from 23.4M USD in 1Q2016 to 2.1M USD in Q12017. This was caused on two fronts. First, by PT Japfa TBK PATMI dropping 81.7% on average selling prices of broilers and day old chicks dropping below breakeven cost caused by oversupply.
Second by Japfa’s Vietnam animal protein PATMI decreasing 171% from 9.2M USD to -6.5M, also caused by below breakeven costs of selling (in this case swine). In the past Vietnam’s big industry boomed as China’s pork demand boomed and local producers were unable to keep up, but two months ago the Chinese government announced a ban on pork imports from Vietnam citing hygiene concerns. This caused a large oversupply in Vietnam.
I believe this is not just temporary but beneficial. Temporary because poultry and swine have short life cycles. 6-7 weeks for chicken and 6-7 months for swine. An important fact to know is that sold chickens are commercially bred from parent stock (PS) which live several years, so it doesn’t benefit much from short life cycles. Beneficial because low prices will squeeze out the small households and lead to increased market share. I know, betting on small households going bankrupt. But is already happening.
In Q3 swine segment PATMI loss shrank from -6.5m to -5.6m. According to this article, 40% of pig breeding households in Vietnam have gone bankrupt. Japfa says pork prices have recovered 35% but are still below break even. Vietnam is negotiating for China to reopen its markets. When it does the double whammy of sudden oversupply and plummeting demand which caused the price collapse will work in reverse. Japfa also has an advantage over small breeders in enforcing and being recognised for cleanliness.
In Q3 poultry segment went from 2.1M to 13M. Not because of consolidation but because the Indonesian government culled 3M parent stock like they did in 2015 (2016 was a boom year for chicken prices). My big worry here is whose parent stock they are culling. 90% of international parent stock is sold by just two big companies, which small breeders are unlikely to be buying from. If every time there is oversupply the government kills off 8% of the companies parent stock, market share might never increase and consolidation might never happen.
Of course this company isn’t without risk. Quantitatively, it is not a good company. Average FCF for the last 5 years is ~-50m a year. It’s highly leveraged with debt/equity at ~80%. Margins are razor thin, with 3% being a very good year for margins. The P/E ratio wildly fluctuates from 10 after Q1 results and 100+ now.
(06-05-2017, 02:12 AM)Terry Wrote: After reading all post about this company. It feels more confusing than before.
Recently a lot share buyback? Any care to comment on its value?
Japfa's management believes the market is grossly undervaluing their shares. According to them the very bad Q1-3 profits are part of the cyclical nature of the poultry business and the market is overreacting to the results.
Homepage
PR Newswire
