JPFA
Contact our analyst Eka
Buy, 34% upside.
4rd March 2020
Price Rp 1495
Target price Rp 2010
4rd March 2020
Price Rp 1495
Target price Rp 2010
Feed profitability rises
- The Feed business recorded higher profit driven by both volume growth and higher margins. In 2019FY, Feed operating profit reached IDR 2.79 trillion an increase of 40% YoY, while breeding operating profit fell -33% to IDR 895 billion, and commercial farm operating profit recorded IDR -50 billion.
- The Feed margin increased from 10.9% to 12.4% in 2019, while the commercial farm margin dropped to -0.3% from 7.3%, and the breeding margin dropped from 22.6% to 14.0%.
- JPFA has been able to maintain the Feed margin around 10%-11% despite fluctuations in raw material prices and the currency.
- Meanwhile, the Breeding business is still depressed by lower broiler prices from an oversupply of broilers in the first three quarters. The government is continuing the day old chick (DOC) & broiler reduction program to control supply and stabilize prices in the domestic market.
- In 2020, the government has already enacted the program three times so far in 2020, on 22 January, 4 February and 17 – 29 February.
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2019FY Result: Single digit revenue growth
Valuation: Maintain BUY TP 2,010, 34% upside
- In 2019FY, JPFA booked revenue of IDR 36.74 trillion up 8.0% yoy from IDR 34.0 trillion in 2018. Growth was mainly from higher sales volumes for poultry feed (+9%) and aqua feed (+18%).
- JPFA gross profit fell slightly -1.1% yoy to IDR 7.13 trillion while the gross profit margin dropped to 8.6% from 11.3% in 2018.
- Operating profit fell -14.6% yoy from 3.72 trillion in 2018 to IDR 3.18 trillion in 2019, and the operating profit margin (OPM) fell to 8.7% from 10.9% in 2018. The weaker margin was due to low broiler prices in the first three quarters of 2019 but was compensated by feed volume growth and a higher feed operating margin. Net income also fell -19% yoy to IDR 1.76 trillion.
- Due to government efforts to control DOC supply we are expecting better pricing in 2020, and we estimate JPFA net income will grow 18% YoY to IDR 2.09 trillion in 2020F.
Valuation: Maintain BUY TP 2,010, 34% upside
- Using a DCF valuation with WACC at 9.6% We are targeting JPFA to trade at 11x 2020F PE within a year. Target Price is IDR 2,010 which represents 34% upside. We maintain our recommendation to Buy.
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