Following RHB's recent report (JAPFA: "Too cheap to ignore," says RHB), CGS-CIMB has a preview of Japfa's 3Q results.
Excerpts from CGS-CIMB report
Analyst: Cezzane See
■ We continue to like JAP’s prospects for the year.
Reiterate Add with an unchanged TP based on 12x FY21F EPS (close to 4-year average mean).
Vietnam swine prices still high
According to Charoen Pokphand Foods (CPF TB, Add, TP: THB39.75), Vietnam swine prices rose to an average of VND80k/kg (Fig 1) in Jul-Aug 20 (up >100% yoy).
CPF’s management believes Sep 20 prices were still high at VND75k-80k/kg.
This implies a still-strong 3Q20F, in our view, with the Animal Protein Other (APO) segment EBIT having already posted an earnings turnaround in 2Q20, from a loss in 2Q19.
China raw milk prices steady
3Q20 average China’s raw milk prices (as at 23 Sep) of Rmb3.7/kg was up c.3.9% qoq and 2.3% yoy, lending a positive bias to JAP’s dairy segment, whose EBIT had already risen by c.21% yoy to US$19.6m in 2Q20 (2Q19:US$16.2m).
Indonesia poultry still weak
According to JAP, average 3Q20 day-old chick (DOC) prices fell c.20% to c.Rp3.3k, while average 3Q20 broiler prices were down to Rp14.6k (-c.13% yoy).
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 3Q20F and 2H20F prospects remaining weak for this segment.
We expect JAP to report a 3Q20F EBIT of c.US$62m (up c.28% yoy), led by strong earnings from its APO and dairy segments.
We see 3Q20F core net profit growing 123.0% yoy to US$26.3m, with the benefits of the higher EBIT being further upheld by lower effective taxes and MI (Indo poultry carries the most leakage).
We adjust our FY20-22F core EPS forecasts marginally, post some housekeeping adjustments, especially within the Indonesia poultry business.
|Maintain Add; diversification bears fruit
Our TP is maintained at S$0.96, still based on 12x CY21F P/E (close to JAP’s 4-year average mean).
Full report here.