Analysts have downgraded Japfa following weaker than expected earnings due to surging costs. Coupled with prospects of a prolonged industry downturn, investors ought to brace for lower chances of a quick recovery.
For its 4QFY2022, Japfa reported a core net loss of US$31.1 million. While its China dairy business reported a profit, its chicken farming business in Indonesia made a loss and its pig farming business in Vietnam suffered too.
“The deterioration in profitability was a confluence of factors, including weak average selling prices for poultry and swine that have not kept up with the rise in raw materials across Japfa’s protein business, as well as the spread of African Swine Fever affecting its swine fattening operations in Vietnam in FY2022,” writes CGS-CIMB Research analyst Tay Wee Kuang in his March 3 report.
According to Japfa, the swine flu caused a direct hit of US$20 million.
Meanwhile, the chicken farming part of the business faces an over-supply situation, which Japfa attributes to inflationary pressures which curb consumer demand in Indonesia.
The sluggish prices will only recover in the second half of this year, says Tay, who has lowered his call from “add” to “reduce” and cut his target price from 42 cents to 24 cents.
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UOB Kay Hian, in its March 7 report, assumes that the pig farming business in Vietnam will continue to suffer from weak selling prices and margins, as feed prices remain high.
“We believe there will be limited near-term catalysts until the ASPs of Indonesia poultry and Vietnam swine recover more significantly,” say UOB Kay Hian analysts John Cheong and Heidi Mo, who are keeping their “hold” call but with a lowered target price of 23 cents.
Japfa shares, as at noon, changed hands at 25 cents, up 2.04%.
