Company Update

27 Mei 2019

JPFA - MNC Sekuritas Equity Report - BUY 270519

MNCS Company Update-PT Japfa Comfeed Indonesia Tbk (JPFA)

Normalizing Result, Expect for Better Demand on 2Q19

1Q19 Performance: Higher Cost depressed Margin
JPFA showing unsatisfactory performance, with net profit in 1Q19 decreased by –28.18% YoY to IDR311 bn, representing 16.01%/16.21% of the consensus/MNCS estimate for FY19E. However, revenue increased by 9.0% YoY to IDR8.56 trillion (vs IDR7.86 trillion in 1Q18) supported by an increase in sales volume of poultry feed and aqua feed business by 7%/30% YoY as well as higher ASPs for poultry feed and DOC. Commercial farm operations recorded operating loss of IDR264.8 bn due to a weaker-than-expected growth in poultry demand caused an oversupply of broiler in 1Q19. A delayed corn harvest also drove up prices of corn purchased in 4Q18 which then weighed into the feed COGS in 1Q19.

Gaining Momentum in Short Declining Stock Price: be Prepared for Festive Moment!
Even though 1Q19's performance was unsatisfactory, we believe it will better in 2Q19E supported by: 1) A recovery of broiler ASP driven by higher demand for poultry during Ramadan season in 2Q19. The Ministry of Agriculture has also started to effect its decree of culling unhatched broiler DOC eggs nationwide, with the intention to stabilize broiler prices for the rest of the year ; 2) A lower corn price in 4Q19 as the best harvest time start in November-February that potentially reduce COGS; 3) Capex allocated of IDR3 tn in FY19E for the corn dryers and 10 corn storages to anticipate the corn price hike during dry season; 4) In terms of share price, JPFA’s share price performance has significantly dropped from the highest level at IDR3,050 in January 30, 2019 and stood at -1STD forward PE (3 years average); 5) JPFA has a relatively lower PE ratio reaching ~54% compared to CPIN with PE at 7.95x.

Valuation and Recommendation: Maintain BUY at a lower TP IDR1,700
We revised down our FY19E earnings to IDR1.92 tn on the back of +6,86% topline growth. Hence, we maintain our BUY call on JPFA with a lower target price at IDR1,700, reflecting a PE/PBV of 10.32x/1.82x for FY19E and 9.22x/1.58x for FY20F. Downside risks: 1) Lower than expected DOC and broiler prices; 2) Weaker than expected demand for poultry after the Ramadan season due to softened purchasing power caused by higher electricity tariff and fuel price hike; 3) Higher corn price due to massive drought that disrupts corn harvest; 4) Unfavorable changes in government regulation.

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