Results First Take: Back in the black
- Japfa Ltd returned to profitability in 4Q21 from net loss in 3Q21
- Turnaround in Japfa Tbk and resilient performance in China dairy helped to mitigate the weakness in Animal Protein Others
- Margin pressure was still evident given higher raw material costs
- Expect near term outlook to remain subdued and margin pressure may linger in 2022
4Q21 results in line with our estimate
- Japfa Ltd returned to profitability in 4Q21, reporting net profit of US$5m (-97% y-o-y) from net loss of US$5m in 3Q21. This brought FY21 net profit to US$119m (-63% y-o-y), forming 97%/88% of our/consensus’ FY21 forecasts. Core PATMI without Forex was at US$12m in 4Q21 (-79% y-o-y; +222% q-o-q), bringing FY21 Core PATMI without Forex to US$133m (-32% y-o-y).
- Excluding the one-off extraordinary net gain of US$140.2m from the effective sale of 80% in Dairy Southeast Asia in 4Q20, net profit dropped by smaller amount of 90% y-o-y in 4Q21 and 35% y-o-y in FY21.
- Japfa Ltd’s gross profit margin improved to 15% in 4Q21 from 8.7% in 3Q21 with improvement in Japfa Tbk’s operation following better broiler prices amid the reopening. However, it was still way below 4Q20’s margin at 24.8% due to higher raw material costs across countries.
- 4Q21 revenue grew by 14% y-o-y and 12% q-o-q to US$1.3b, taking FY21 revenue to US$4.6b (+20% y-o-y). This represents 104%/107% of our/consensus’ FY21 forecasts.
- Japfa Tbk reported revenue of US$845m in 4Q21 (+18% y-o-y; +14% q-o-q), driven by higher sales volume due to the reopening and holiday season. Furthermore, average DOC and broiler prices recovered to Rp6,700/chick and Rp20,300/kg, respectively in 4Q21 from Rp5,900/chick and Rp17,300/kg in 3Q21 as the government eased the movement restrictions and imposed more culling mandates. Hence, Japfa Tbk booked operating profit of US$59m in 4Q21 from operating loss of US$25m in 3Q21, helped by recovery in commercial farm segment. However, 4Q21 operating profit fell by 38% y-o-y, mainly due to margin pressure in feed segment caused by higher raw material costs and global shipping costs.
- Animal Protein Others (APO) booked revenue of US$248m (+11% y-o-y; +6% q-o-q), supported by higher sales volumes for swine fattening and swine feed in Vietnam. That said, APO segment remained in the red with operating loss worsened to US$21m in 4Q21 from operating loss of US$15m in 3Q21 and operating profit of US$19m in 4Q20. This was driven by: (i) weak Vietnam operation due to significant drop in swine and poultry prices caused by the lingering impact from the COVID-19 pandemic and the resurgence of African Swine Fever (ASF), (ii) operating loss in Myanmar operation as DOC and broiler prices remained low due the impact of COVID-19 and the political disruptions in the country, and (iii) contraction in feed margin due to high feed raw materials prices and global shipping costs.
- China dairy operation reported revenue of US$157m in 4Q21 (+0.1% y-o-y; +7% q-o-q), driven by higher sales volumes and stable prices of raw milk. Flat y-o-y growth in revenue was because 2020’s number still included Dairy Southeast Asia operation. Higher sales volumes came from additional contribution from Farm 8 and the two newly acquired farms in Shandong. In 4Q21, China dairy operation booked operating profit of US$30m, flat q-o-q, but dropped by 12% y-o-y as 2020’s number still included Dairy Southeast Asia operation as well as due to the impact of higher feed costs.
- The management recommends a final dividend of 1.5 Singapore cents per share for FY21.
Outlook
Maintain HOLD with TP of S$0.67. We have a HOLD call for Japfa Ltd as we expect near term outlook to remain subdued and margin pressure may linger in 2022, given raw material and logistics costs stay elevated. Furthermore, the impact of ASF to swine prices in Vietnam may continue in 1H22. Thus, while Japfa’s valuation is relatively cheap vs. peers and currently trades at undemanding valuation, we prefer to wait for better signs of recovery in Vietnam’s swine operation and Japfa’s overall margin. We will have more updates after analysts briefing this morning.
