Analysts from DBS Group Research have raised their target price for Japfa UD2 , after higher earnings projections on Japfa’s Comfeed was announced.
Chee Zheng Feng and Andy Sim from DBS say that the agri-food company has “more legs to run”, and have raised their target price to 49 cents from 45 cents previously.
According to the analysts’ report on Aug 22, Japfa’s operations which are in emerging markets such as Indonesia, Vietnam, Myanmar, India and Bangladesh, has leading positions in day-old chicks (DOC), and poultry feed.
In Indonesia, DBS’s analyst has raised projections for Japfa’s Comfeed, given expectations of higher feed margins led by lower corn input costs.
The DBS analyst in Indonesia believes that the market has been overly concerned about the potential losses in 3Q2024, from the recent drop in broiler and DOC prices which are attributable to reduced demand during the Suro Month and Eid Al Adha. These are periods typically characterised by lower chicken consumption.
Separately, Chee and Sim say that Japfa has announced its intention to undertake off-market purchase of its shares, which will offer shareholders an alternative to release a portion of its shareholding at a small premium to the current market traded value.
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Japfa’s equal opportunity offer was announced on Aug 19, in which it announced an off-market purchase of its shares at 35.5 cents for up to 183.3 million shares, or about 9% of its total existing outstanding shares.
“The offer price would likely provide a strong support to share price, and a signal to the market of the board’s and management’s confidence,” the analysts say. “That said, we believe acceptance may likely be low given the potential for further upside. We believe that the market has yet to price in the recovery in its Vietnam operations, and the value of its Japfa Comfeed stake.”
They note that the about 30% increase in Vietnam swine prices since the start of 2024 is sustainable as the supply situation has stabilised, while input costs have also moderated, providing a further upside for Japfa.
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To that end, the analysts remain positive on the counter and believe that there are potential upsides on the back of continued improvement in operations in Japfa’s Indonesia and Vietnam arms.
“With its strong showing of 1HFY2024 in both Comfeed and a turnaround in its Vietnam operations, share price has yet to fully reflect the same,” the analysts say. “In Indonesia, our Japfa Comfeed forecasts are about 20% above consensus’ estimates, which our analyst believes will be adjusted upwards as the market recognises the improvement in feed margins.”
They raise their sum of the parts-target price to 49 cents on the back of higher valuation for Comfeed. They note that Japfa valuation remains attractive at under 5 times ev/ebitda and under 7 times FY2024 P/E, while downside looks limited in the near term with the equal opportunity offer of 35.5 cents.
As at 2.58pm, shares in Japfa are trading flat at 34.5 cents.
