JPFA
Contact our analyst Eka
Expecting Better Margins, 30% upside.
12nd September 2018
Price Rp 2040
Target price Rp2660
12nd September 2018
Price Rp 2040
Target price Rp2660
Higher DOC and Broiler prices
- Broiler prices reached the highest level in July 2018 with 37.8% growth compared to July 2017, while Day Old Chick (DOC) prices reached the highest level in August 2018 and are 29% growth compared to August 2017.
- The higher prices of DOC and broiler are due to government action to ban the use of Antibiotic Growth Promoters (AGP) for DOCs and Broilers since January 2018. In addition, there was higher demand for broilers during Ramadan in 2Q2018.
- The ban on AGP caused the mortality rate of livestock to increase, the feed conversion ratio (FCR) of livestock to be lower, and broiler body weight to be lower compared to before when AGP was used.
- Furthermore its caused supply of DOC and broiler lower and higher prices of DOC and broiler.
- We expecting JPFA will have better margins in 2018 from lower prices of corn purchased during the recent harvest (~70% sourced domestically), and lower soybean mill prices since May 2018 (100% imported).
- Average selling prices of day old chicks (DOC) and broilers also boosted the margin from higher demand during Ramadan in the 2Q2018.
- We expecting GPM, OPM, NPM to recover from 2017’s 17%, 7.7%, 3.4% to 21%, 11.7% and 6.9% respectively in 2018F.
- We revise our 2018F target bottom line to IDR 2.39 trillion from IDR 1.77 trillion, and operating profit and EBITDA to IDR 4.05 trillion and 4.5 trillion from IDR 2.91 trillion and 3.78 trillion previously.
- We upgrade our target to BUY as good result in 1H2018 and many other positive factors will boost 2018 results.
- Using DCF valuation with WACC at 8.48% We are targeting JPFA to trade at 13x 2019F PE within a year. Target Price is IDR 2,660 which represents 30% upside. BUY
Previously
