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Japfa Ltd - UOB Kay Hian 2016-11-30: A Proxy To Emerging Asia

JAPFA LTD (JAP SP) - UOB Kay Hian 2016-11-30: A Proxy To Emerging Asia JAPFA LTD. UD2.SI

JAPFA LTD (JAP SP) - A Proxy To Emerging Asia

  • Japfa Ltd operates in a highly competitive industry with the winners being those companies running the most efficient operations. 
  • With the recent vote of confidence from KKR we expect a clear execution plan in place together with active involvement from arguably one of the world’s largest private investors. 
  • We paid a visit to Myanmar to get a better understanding of Japfa’s operations.



VALUATION

  • Japfa Ltd (Japfa) is trading at 7.4x FY16 PE. Regional peers such as Charoen Pokphand and Malindo Feedmill trade at an average of 17.6x FY16 PE.


INVESTMENT HIGHLIGHTS


Regional presence with multiple products provides diversification. 

  • Japfa operates by selling five proteins in five different countries. The company is a price taker when it comes to the selling price of these proteins. By offering a variety of products from poultry, beef, aquaculture, swine and milk, the company is better positioned to weather volatility in the prices of each commodity. 
  • In addition, the company also has production facilities in five different countries which act as a defence in the case of disease outbreaks, natural disasters or geopolitical unrest.

The feed business is stable and drives the rest of the group. 

  • Japfa’s value proposition lies in its superior feed. Being strong in the upstream feed business has allowed Japfa to become a vertically integrated business across the entire value chain.
  • The company uses world class genetics supported by advanced farming technology to maximize efficiency in breeding operations. Feed margins have remained stable even in a period of weak day old chick (DOC) prices.

Priced at a significant discount to regional peers. 

  • Japfa is trading at an FY16 PE ratio of only 9.5x which is a significant discount to regional agri-food companies which trade at 19.6x FY16 PE.

KKR’s experience in prior poultry investments could prove to be very beneficial.

  • In June 16, KKR invested approximately US$81.2m for a 10.44% stake in its Indonesian listed subsidiary PT Japfa Tbk. KKR’s operational experience in the sector through its investment in Shenzhen listed Fujian Sunner could be beneficial to taking Japfa to the next level.

Proxy to emerging Asia. 

  • Japfa’s target markets are home to more than 3b people or 40% of the world’s population resulting in very attractive industry dynamics driven by strong structural growth in Asian protein consumption.




Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2016-11-30
UOB Kay Hian SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998






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