Analysts at UOB Kay Hian and CGS-CIMB Research have lowered their target prices on Japfa following its below expectations earnings result for 3QFY2022 ended September.
UOBKH analyst John Cheong has kept his “hold” call on Japfa with a target price of 57 cents from 63 cents previously, while CGS-CIMB’s Tay Wee Kuang has kept his “add” call with a target price of 72 cents from 81 cents previously.
Tay says Japfa’s 3QFY2022 core net profit of US$11.4 million ($16.20 million) brought 9MFY2022 core net profit to US$66.6 million, below expectations at 68.9% of the analyst’s FY2022 estimates.
Japfa’s 3QFY2022 revenue grew 10.6% y-o-y to US$1.24 billion on better average selling prices (ASPs) due to demand disruption from Covid-19 a year ago.
“On a q-o-q basis, revenue declined marginally by 0.9% as better sales volume across all businesses offset quarterly volatilities in ASPs, especially in the Animal Protein Others (APO) segment, where recovery in swine prices in July and August was upended when Vietnam saw a resurgence in African Swine Fever (ASF) in September, leading to forward selling in the market,” adds Tay.
Cheong points out that in 3QFY2022, Japfa’s Indonesia-listed subsidiary Japfa TBK reported core PATMI of US$10 million, a 24% decline q-o-q. Although the ASPs for Indonesia’s poultry segment have increased, profitability still remains under pressure as high feed raw material costs resulted in increased production costs across the vertically integrated operations.
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Meanwhile, Japfa's dairy revenue from China rose 9% y-o-y for 9MFY2022, driven by higher raw milk sales volumes and additional contribution from Farm 8 and the two recently-acquired farms in Shandong. However, core PATMI for the dairy segment fell 57% y-o-y to US$30 million due to high feed costs, which resulted in increased production costs for both dairy and beef operations, says Cheong.
Tay highlights that Japfa will be holding an EGM for the approval of its dividend-in-specie for AusAsia Group’s (AAG) shares on Nov 7, which will be contigent on AAG’s listing on the Hong Kong Stock Exchange (HKEX).
“In our SOP valuation for Japfa, we continue to ascribe $985.5 million for its 62.5% stake in AAG, based on its previous stake sale to strategic investors in FY2021. As current market conditions are not conducive for an IPO, we do not see an urgent need for capital that prohibits Japfa from waiting for a more opportune time for an equity fund-raising,” he adds.
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CGS-CIMB has cut its FY2022, FY2023 and FY2024 EPS estimates by 20.7%, 14.4% and 14% respectively on lower operating margins from the APO segment, which could extend into FY2023.
Similarly, UOBKH has cut its FY2022, FY2023 and FY2024 gross margin estimates by 0.7%, 1.4% and 1.5% respectively. After the reduction in gross margins, its FY2022, FY2023 and FY2024 core PATMI estimates are lowered by 27%, 39% and 39% respectively.
As at 9.03am, shares in Japfa are trading at an unchanged 49 cents.
