JPFA
Contact our analyst Eka
Buy, 56% upside.
28th May 2020
Price Rp 895
Target price Rp 1400
28th May 2020
Price Rp 895
Target price Rp 1400
Strong 1Q revenue and profitability
- Despite the Covid-19 outbreak potentially leading to lower purchasing power, JPFA revenue and profitability were strong in 1Q2020.
- In 1Q2020, JPFA booked revenue of IDR 9.08 trillion up 6.0% yoy from IDR 8.56 trillion in 1Q2019. Growth was mainly from higher sales volumes for poultry feed (+7%) and aqua feed.
- JPFA gross profit grew +11.8% yoy to IDR 1.59 trillion while the gross profit margin jumped to 17.5% from 16.6% in 1Q2019.
- Operating profit grew 10.8% yoy to IDR 5766 billion, while the operating profit margin increased to 7.2% from 6.4% in 1Q2019.
- Net income grew 12.2% yoy to IDR 366 billion.
- JPFA has taken action to freeze non-essential capex and thus reduce capex for 2020.
- We cut our estimates to single digit for revenue and profitability growth but we still consider JPFA products can produce growth as they are affordable and an essential food source of protein.
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Broiler and DOC weakness
- As of April 2020, Day Old Chick (DOC) prices and broiler prices have fallen to the lowest levels in months. The drop in DOC and broiler prices started in 4Q2019 and has so far failed to rebound.
- The impact of a lower broiler ASP because of an over supply of broilers, has resulted in an operating loss for JPFA commercial farm operations in 1Q2020.
- JPFA DOC revenue also fell -17,5% yoy to IDR 666 billion due to a lower DOC ASP.
- The weakening of broiler and DOC ASPs is expected to continue post 1Q2020. But we expecting this weakness will be offset by a stable feed segment.
- Overall we expect demand to continue to be negatively affected by lower purchasing power in May 2020.
- Using a DCF valuation with WACC at 9.45% We are targeting JPFA to trade at 8.4x 2021F PE within a year. Target Price is IDR 1,400 which represents 56% upside. We maintain our recommendation to Buy.
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