Japfa Comfeed Indonesia JPFA IJ / JPFA.JK

Transcription

1 Vol (mn) Equity Research Japfa Comfeed Indonesia JPFA IJ / JPFA.JK Company Update BCAS Vignette Poultry Sector Golden eggs with many hands Facts: NP: % YoY, below ours, but above consensus JPFA registered strong 2016 net profit of IDR2.1tn (+304.9% YoY) vs net profit of IDR468bn, which was below our expectation at 87.2%, but above consensus at 122.7%. This was driven by volume growth rather than price growth in feed and DOC segment, which brought revenue of IDR27.1tn (+8.2% YoY) vs. IDR25.0tn in Another driver emerged from 420bps gross margin improvement, on the back of price increases in commercial farm and consumer product segments (at 39%, the highest contributor to revenue in 2016). Lower debt in 2016, at IDR5.9tn vs. IDR6.8tn in 2015, translate to interest expense reduction from ST and LT bank loans (47.6% YoY) and bonds payable (3.2% YoY). Outlook: Not without interference As the number two poultry player with vertically integrated poultry operation after CPIN in terms of feed production capacity (25% market share) and DOC production capacity (22% market share), we think JPFA should benefit from its position. We expect poultry consumption per capita to continue to increase going forward, due to 1) Indonesia s huge population, 2) rising urbanization rate, and 3) household income increase, which drives poultry demand growth for feed, DOC, commercial farm and consumer products segment (83% contribution to revenue). For cattle and aquaculture segments, we expect a higher contribution in the future, on the back of beef consumption in Indonesia estimated to rise more than 13x between 2009 and 2050, according to the Australian Bureau of Agricultural and Resource Economics and Sciences. Having said that, there are many challenges faced: 1) DOC pricing cap which may limit JPFA s margin to expand, 2) limited corn supply, as about 50% of raw feed material comes from abroad, given the halt in corn import quotas this year, 3) possible outbreak of disease (bird flu) may pose a risk to the poultry business, and 4) weather conditions. Recommendation: Reiterate Buy, our top pick We reiterate a Buy recommendation on JPFA on the back of diversified business in cattle and aqua segments in addition to poultry segment, catering to changing demand for protein from animal sources minimizing or spreading the risk (outbreak of disease). Post2016 result adjustment, we reduce the margins with results in downward earnings revision of 11.9% and 9.4% in F. As such, we revise down our TP to IDR2,220 based on 5year DCF valuation, which translates into a potential upside of 30.2%. Downside risks: IDR volatility, given a large part of raw feed materials are still imported, higher commodity prices and disease outbreak. Exhibit 1. Poultry and Beef consumption to rise more than 13x 12M PRICE PERFORMANCE (IDR) 2,500 2,000 1,500 1, JPFA IJ (LHS) STOCK PERFORMANCE (Unchanged) 3 March 2017 Johanes Prasetia johanes.prasetia@bcasekuritas.co.id ext 185 Current Price: IDR1,705 Target Price: IDR2,220 (IDR2,410 previously) Upside potential: 30.2% YTD 1M 3M 12M Absolute 17.2% 1.7% 8.3% 101.8% JCI Return 2.1% 1.0% 3.1% 11.8% Relative 15.1% 2.7% 5.2% 89.9% FINANCIAL HIGHLIGHT EV/EBITDA EPSG P/E P/BV (x) (%) (x) (x) F F Source: BCA Sekuritas BUY (50.0) Rel. to JCI performance (RHS) Mar16 Jun16 Sep16 Dec16 Mar17 (%) MARKET DATA 12M price range (IDR) : 775 1,960 12M PE range (x) : Outstanding shares (mn) : 11,411 Market cap (IDRbn)/(USDmn) : 19,455 / 1,457 Avg daily turn. (IDRbn/USDmn) : 12.2 / 0.9 Source: Australian Bureau of Agricultural and Resources and Sciences, BCA Sekuritas SHAREHOLDERS Japfa Ltd. : 51.0% KKR Jade Investment : 12.0% Public (each below 5%) : 37.0%

2 Exhibit 2. JPFA s Financial Summary Income Statement Revenue 24,459 25,023 27,063 30,255 33,322 Cost of revenue 21,033 21,030 21,584 24,052 26,424 Gross profit 3,426 3,993 5,479 6,202 6,898 Operating profit 1,285 1,728 2,921 3,343 3,748 Interest income Interest expense (694) (681) (510) (487) (357) Forex gain/(losses) (78) (479) 11 (160) Other income/(expense) EBITDA 1,752 2,289 3,547 4,019 4,436 Income before tax ,767 2,831 3,444 Taxes expenses (160) (173) (595) (656) (769) Minority interests Net income ,065 2,295 2,806 EPS (IDR) Balance sheet Cash and equivalents ,713 1, Account receivables 1,243 1,200 1,212 1,329 1,470 Inventories 5,836 6,487 5,500 6,787 7,602 LT Invest & receivables Fixed assets 6,411 6,981 7,541 7,676 7,822 Other assets 1,437 1,560 2,132 2,203 2,279 Total assets 15,759 17,159 19,251 19,647 20,102 ST liabilities 2,494 2,067 2,259 2,359 2,462 Other ST liabilities 2,422 3,286 2,934 3,432 3,737 LT liabilities 4,745 4,758 3,609 2, Other LT liabilities ,076 1,112 1,150 Total liabilities 10,579 11,050 9,878 9,012 7,808 Equity 5,180 6,110 9,373 10,635 12,294 Total liabilities & equity 15,759 17,159 19,251 19,647 20,102 Cash Flows Statement Net Income ,065 2,295 2,806 Depreciation Change in working capital (943) (687) Operating cash flow 1,571 1,453 2,754 2,028 2,807 Capital expenditure (1,598) (709) (787) (810) (835) Others Investing cash flow (1,588) (682) (498) (810) (835) Dividend paid (106) (240) (1,032) (1,147) Net change in debt (639) (671) (827) (1,400) (1,547) Others (220) Financing cash flow (965) (667) (447) (2,432) (2,694) Change in cash (983) 104 1,809 (1,215) (722) Beginning cash flow 1, ,701 1,487 Ending cash flow ,701 1, Key Ratios F 2018F Gross margin (%) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) ROAE (%) ROAA (%) Current ratio (x) Acid ratio (x) Gearing (%) Net gearing (%) AR turnover (days) Inventory turnover (days) AP turnover (days) Benign margin going forward on the back of DOC pricing cap, which limits margin to expand Key Assumptions F 2018F Feed ASP (IDR/kg) 3,683 3,528 3,540 3,653 3,722 Feed volume (mn tons)

3 Exhibit 3. JPFA s 2016 result JPFA IJ QoQ YoY YoY FY16F/ FY16F/ Profit & Loss (IDRbn) 4Q15 3Q16 4Q16 (%) (%) FY15 FY16 (%) BCAS Cons. Revenue 6,287 7,059 6,462 (8.5) ,023 27, COGS 5,003 5,374 5, ,030 21, Gross profit 1,285 1,685 1,081 (35.8) (15.8) 3,993 5, EBIT 701 1, (63.2) (41.6) 1,728 2, Other income/(expenses) Net interest income/(expense) (157) (120) (83) (31.4) (47.3) (663) (484) Net forex gain/(losses) (151) na na (479) 11 Others na na Pretax profit 696 1, (60.8) (39.8) 698 2,767 Net profit (55.3) (44.8) 468 2, Gross margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Balance sheet (IDRbn) Dec15 Sep16 Dec16 Cash and equivalents 901 1,170 2,701 Total assets 17,159 18,342 19,251 Total liabilities 11,050 9,384 9,878 Interest bearing liabilities 6,825 4,718 5,868 Equity 6,110 8,958 9,373 ROA (%) ROE (%) Gearing (%) Net gearing (%) estimates Exhibit 4. Earnings change (IDRbn) 2017F 2018F Old New Chg (%) Old New Chg (%) Net revenue 30,300 30,255 (0.2) 33,385 33,322 (0.2) Gross profit 6,424 6,202 (3.4) 7,111 6,898 (3.0) Operating profit 3,689 3,343 (9.4) 4,098 3,748 (8.5) Net profit 2,604 2,295 (11.9) 3,098 2,806 (9.4) Gross margin (%) (0.7) (0.6) Operating margin (%) (1.1) (1.0) Net margin (%) (1.0) (0.9) We reduce our margin, on the back of a DOC pricing cap, despite rising poultry consumption 3

4 Exhibit 5. DCF Valuation Yearend 31 Dec 2017F 2018F 2019F 2020F 2021F 2022F Operating profit 3,343 3,748 4,107 4,500 4,930 5,355 Less: taxes (774) (837) (934) (1,014) (1,117) (1,232) Aftertax operating income 2,568 2,911 3,173 3,486 3,814 4,123 Add: Depreciation & amortization Add: Chng in working capital (943) (687) (678) (654) (662) (792) Operating cashflow 2,302 2,912 3,196 3,555 3,900 4,102 Less: Capex (810) (835) (950) (998) (1,000) (980) Free cash flow 1,491 2,077 2,246 2,557 2,900 3,122 Our target price of IDR2,220 is based on DCF valuation, with WACC of 12.1% Debt % pretax cost of debt 8.7% % tax rate 24.2% % cost of debt 6.6% Weight Debt 38.5% Equity % risk free rate 7.3% Current beta 1.6 Market premium 5.0% % cost of equity 15.5% Weight Equity 61.5% WACC 12.1% Terminal Growth 2.0% Present value of CF until 2022F 9,422 % growth from 2022F to pertuity 2.0% FCF in 2022F 3,122 Exit FCF multiple (x) 10.1 Terminal value 31,665 PV of terminal value 17,924 Total company value 27,345 (Net Cash) or Net Debts 2,981 Value to equity holders 24,364 Value to equity holders (Rp/share) 2,224 Upside to current price 30.5% Current share price 1,705 4

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