JPFA Nov2020

JPFA

Contact our analyst Eka

Hold, 10% upside.
26th November 2020
Price Rp 1,340
Target price Rp 1,470

Recovery in 3Q2020

After a weak 2Q2020, JPFA’s performance recovered in 3Q2020. JPFA 3Q2020 revenue increased +2.4% QoQ to IDR 8.1 trillion but was still down -10% YoY. For 9M2020, JPFA’s revenue was down -8.3% YoY to IDR 24.9 trillion.
In term of QoQ, most of JPFA’s businesses (aquaculture +13.6%, animal feed +8.6%, DOC +4.9%, commercial farm and consumer products +1.3%) except for the cattle segment (-41%) showed single to double-digit growth.
The positive sentiment from the PSBB transition in 3Q2020 was offset by lower DOC and broiler prices at the farmer level. The reduction in supply recommended by the government has not significantly improved prices.
However, we are expecting 4Q2020-2021 demand will gradually recover (not V shaped) in line with a recovery of Indonesia private consumption.

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Better 3Q2020 Margins

JPFA 3Q2020 net profit turned positive at IDR 102 billion from a loss in 2Q2020 of IDR -17 billion, resulting in a higher net profit margin at 1.3%.
Better costs meant, JPFA gross profit also increased +12% QoQ to IDR 1.32 trillion in line with a higher gross profit margin of 16.5% from 15.1% in 2Q2020.
Operating profit also turned positive at IDR 405 billion after a loss in 2Q2020 of IDR -32 billion.
We are expecting JPFA’s 2020 profit will be the lowest since 2015 due to the impact of the Covid-19 pandemic. We have revised down JPFA profit forecast for 2020F to IDR 435 billion or lower by -75% YoY.

More Acquisitions

JPFA and its subsidiary, PT Ciomas Adisatwa acquired a 100% stake in PT So Good Food, for IDR 1.21 billion in August. The transaction will be finalized on November 30th. The acquisition will be funded 30% from internal cash and the remainder from issuing promissory notes to the seller, Jupiter Foods.
This acquisition is part of JPFA’s strategy to expand their downstream business by increasing the capacity of processed meat production facilities and also increasing the direct marketing and sales of processed products to consumers.
JPFA also entered into a joint venture agreement through PT Suri Tani Pemuka with Hendric Genetic Aquaculture B.V. The JV will improve efficiency and logistics, by producing broodstock shrimps in Indonesia in the newly established BMC rather than importing shrimp broodstock from Hawaii.
As of 9M2020 JPFA has ample cash of IDR 2.18 trillion.

Valuation: TP 1470, 10% upside

Using a DCF valuation with WACC of 8.29%, we are targeting JPFA to trade at 20x 2021F PE within a year. Target Price is IDR 1,470 which represents 10% upside. We recommendation to HOLD.

Previously

JPFA Aug2020