Japfa Comfeed Indonesia(JPFA IJ)

Transcription

1 Equity Research Company Update Monday, 02 July 2018 BUY Maintain Last price (IDR) 1,600 Target Price (IDR) 1,850 Upside/Downside +15.6% Previous Target Price (IDR) 1,850 Stock Statistics Sector Bloomberg Ticker Poultry JPFA IJ No of Shrs (mn) 11,411 Mkt. Cap (IDRbn/USDmn) 18,257/1,268 Avg. daily T/O (IDRbn/USDmn) 5.8/0.4 Major shareholders (%) Japfa Ltd KKR Jade Investments Pte Ltd Estimated free float 38.7 EPS Consensus (IDR) 2018F 2019F 2020F Danareksa Consensus Danareksa/Cons JPFA relative to JCI Index Japfa Comfeed Indonesia(JPFA IJ) Pabelan, Sragen, and Sumogawe Site Visit During our site visit on June , we saw: 1) Slaughterhouse RPA Ciomas Unit Pabelan, 2) Feedmill Unit Sragen, 3) and Ciomas Commercial Farm-Sumogawe. We learnt during our visit that the management has been making efforts to: 1) expand Best Meat Stores, 2) build new silos and warehouses and 3) expand its closed house system to improve its broiler Index Performance (IP). Slaughterhouse RPA Ciomas Unit Pabelan. The chicken slaughterhouse unit in Pabelan was established in 2009 on 1 ha of land. In 2017, the capacity reached 4,000 birds/hour or equal to 56,000 birds/day or 16.8 million birds annually to serve customers who want whole chicken products, chicken wings, chicken fillets, boneless chicken breasts and skin, lower chicken thighs, upper chicken thighs, and boneless chicken thighs and skin. In 2017, JPFA s top 5 customers in Pabelan were: 1) Olive Fried Chicken, 2) Rocket Fried Chicken, 3) Richeese Factory, 4) Miftakhul Fauzi, and 5) Vanly Prima Vaganza. The management is making efforts to expand its Best Meat Stores. Feedmill Unit Sragen. JPFA operates 14 commercial feedmills and 3 breeder feedmills in Indonesia with 3 different brands: 1) Benefeed, 2) Comfeed, and 3) Gemilang. The raw materials include: 1) yellow corn, 2) soybean meal, 3) corn gluten meal, and 4) other ingredients such as meat and bone meal, DDGS, palm olein, and vitamins. The production flow is as follows: 1) filling raw materials into bin production, 2) weighing the raw materials based on recipes, 3) grinding the raw materials into smaller particles, 4) mixing the raw materials into a homogeneous mixture, 5) forming mash into pellets by using dies, 6) bringing feed temperature to room temperature and breaking the pellets into crumble, and 7) feed packaging and delivery. Source : Bloomberg x Adeline Solaiman (62-21) ext.3503 adeline.solaiman@danareksa.com Ciomas Commercial Farm Sumogawe. In Central Java, the total capacity of JPFA s commercial farm is 4,121,500 birds with potential monthly DOC production in the range of 2.2 million 2.4 million. JPFA has contract growers in Semarang, Kudus, Ungaran, Demak, Blora, and Sonagi and its own farms in Semarang, Kudus, and Ungaran. Based on the company s performance report for Central Java, in April 2018 alone, its own Farm IP reached 334 versus 308 for contract growers. The management is now making efforts to expand its closed housing system. BUY on JPFA. We maintain our BUY call on JPFA with an unchanged TP of IDR1,850. The key risks relate to: 1) fluctuations in DOC and broiler ASP, 2) price fluctuations in corn and SBM prices, and 3) IDR depreciation. Key Financials Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (IDRbn) 27,063 29,603 33,897 37,534 41,666 EBITDA (IDRbn) 3,717 2,849 3,643 3,996 4,433 EBITDA Growth (%) 62.4 (23.4) Net profit (IDRbn) 2, ,739 1,947 2,230 EPS (IDR) EPS growth (%) (51.7) BVPS (IDR) , ,183.2 DPS (IDR) PER (x) PBV (x) Dividend yield (%) EV/EBITDA (x) Source : JPFA, Danareksa Estimates See important disclosure at the back of this report 1

2 Exhibit 1. Revenues and Growth Exhibit 2. Net Profits and Growth, Danareksa Sekuritas estimates, Danareksa Sekuritas estimates Exhibit 3. Margins Exhibit 4. Gearing Level, Danareksa Sekuritas estimates, Danareksa Sekuritas estimates A. Slaughterhouse RPA Ciomas Unit Pabelan Profile The chicken slaughterhouse unit in Pabelan was established in 2009 and is located in Pabelan, Semarang. It is located on a site covering approximately 1 ha. Upon its establishment, the company built a processing plant with a capacity of 1,000 birds/hour or equal to 4.2 million birds annually in By 2017, through further expansion, the capacity reached 4,000 birds/hour or equal to 56,000 birds/day or 16.8 million birds annually. There were about 210 employees in RPA Ciomas Unit Pabelan has a blast freezer with capacity of 51 tons/day or 15,300 tons/year in 2017 and cold storage with capacity of 300 tons. Exhibit 5. RPA Ciomias Unit Pabelan (1) Source: Danareksa Sekuritas See important disclosure at the back of this report 2

3 Exhibit 6. RPA Ciomas Unit Pabelan (2) Source: Danareksa Sekuritas Products and market At RPA Ciomas Unit Pabelan, JPFA prepares whole chicken products, chicken wings, chicken fillets, boneless chicken breasts and skin, lower chicken thighs, upper chicken thighs, and boneless chicken thighs and skin. In 2017, the top 5 customers in Pabelan for JPFA were: 1) Olive Fried Chicken, 2) Rocket Fried Chicken, 3) Richeese Factory, 4) Miftakhul Fauzi, and 5) Vanly Prima Vaganza. These customers purchased around 56% of JPFA s production in total in JPFA has been expanding its Best Meat Stores to increase sales of its consumer products. In Central Java and DIY (Yogyakarta), JPFA operates about 10 Best Meat Stores. Exhibit 7. Top 5 Customers in Pabelan 1. Olive Fried Chicken 2. Giant Supermarket 3. Quick Fried Chicken 4. Richeese Factory 5. A&W Fried Chicken 1. Olive Fried Chicken Supermarket 2. Rocket Fried Chicken Fried Chicken 3. Richeese Factory Fried Chicken 4. Miftakhul Fauzi Horeka 5. Vanly Prima Vaganza 44% of total production 56% of total production Fried Chicken Fried Chicken Fried Chicken Trading Trading Exhibit 8. Best Meat Stores, June Jabodetabek 2. Sumatera 3. East Java 4. Sulawesi 5. Central Java and DIY 6. Kalimantan 7. Bali Total stores 105 Production Flow The production flow process in RPA Ciomas Unit Pabelan starts with a truck bringing broilers, a resting area, hanging, stunning, halal slaughtering and breeding, scalding, defeatering, visceral removing, washing and chilling, rechanging and dripping, grading, packing and processing, warehousing, logistic transportation, and customers. Competitive Advantages and Expansion The competitive advantage of RPA Ciomas Unit Pabelan is that the management has a good relationship with customers compared to its competitors in the area See important disclosure at the back of this report 3

4 and there is 24 hours sales team service. RPA Ciomas Unit Pabelan is market oriented and offers the best quality products with Halal Certification, NKV, BPOM, and SQMS. The planned expansion is to upgrade the evisceration process from manual to automatic evisceration to increase manpower efficiency. B. Feedmill Unit Sragen Profile JPFA operates 14 commercial feedmills and 3 breeder feedmills in Indonesia with 3 different brands: 1) Benefeed, 2) Comfeed, and 3) Gemilang. They target different segments based on pricing. For the raw materials, JPFA uses: 1) yellow corn, 2) wheat, 3) soybean meal, 4) corn gluten meal, 5) meat and bone meal, 6) wheat bran. JPFA also uses: 7) dried distiller grains with soluble (DDGS), 8) palm olein, 9) premix and broiler vitamins, and also 10) methionine. Exhibit 9. Feedmill Unit Sragen Source: Danareksa Sekuritas Quality Control and Laboratory For the quality control, the management has an automatic sampler, fiber extractor, fat extractor, and distillatory protein. Production Process The production flow in Feedmill unit Sragen starts with raw material intake or filling raw materials into bin production, dosing or the process of weighing the raw materials based on recipes, and grinding or grinding raw materials into smaller particles. Then, the process continues with mixing or mixing raw materials into a homogeneous mixture, pelleting or forming mash into pellets by using dies, cooling crumbling or bringing feed temperature to room temperature and breaking the pellets into crumble, bagging off or feed packing, and delivery. Competitive Advantages and Expansion JPFA s feedmill has a strong brand image, premium quality feed and stable consistency, and also good nutrition and an international network. There is strict QC from receiving the raw materials or pre sampling until the finished feed products are released. The company also has its own research farm to test and trial the products, a strong sales team, best technical services and technical support with complete equipment, loyal customers and good relationships with suppliers and customers, and guaranteed supply of High Quality DOC Broilers and DOC Layer. JPFA has a fully integrated poultry business, good international relationships with genetic companies and nutrition suppliers, and good relationships with bankers who provide recommendations for See important disclosure at the back of this report 4

5 customers/distributors financing. In Feedmill unit Sragen, JPFA plans to expand its 3 rd line and loading dock, build new warehouses and 4 new silos with 2,000 tons capacity. C. Ciomas Commercial Farm Sumogawe Profile In Central Java, JPFA s total capacity for Commercial Farms is 4,121,500 birds with potential producing DOC in a month in the range of 2.2 million 2.4 million. JPFA has contract growers in Semarang, Kudus, Ungaran, Demak, Blora, and Sonagi and its own farms in Semarang, Kudus, and Ungaran. Based on the company s performance report in Central Java, the May Index Performance (IP) was stable at 318, resulting in a 5M18 IP of around 326. This figure is a consolidated IP for both contract growers and its own farms. The formula for IP is {[(Population Depletion) x Body Weight] / [FCR x age]} x 100%. For its own Farms IP in Central Java, the figure in April 2018 reached 334 while the contract grower IP in April 2018 reached 308. Historically, the IP for its own farms was higher than the IP for its contract growers since the number for the closed house system that is higher in its own farms compared to contract growers. Exhibit 10. Contract Growers in Central Java Unit Semarang Unit Kudus Unit Ungaran Unit Demak Unit Blora Sonagi Contract Grower 504,000 birds and Own Farm 214,000 birds Contract Grower 1,053,000 birds and Own Farm 180,000 birds Contract Grower 450,500 birds and Own Farm 110,000 birds Contract Grower 399,000 birds Contract Grower 364,000 birds Contract Grower 847,000 birds Exhibit 11. Performance Report Region Central Java on Description Amount Population 10,655,464 11,357,148 14,814,961 8,229,464 45,057,037 Depletion Age Body Weight FCR IP Exhibit 12. Performance Report Region Central Java on 2018 Description Jan Feb Mar Apr May Amount Population 1,423,118 1,459,384 1,523,395 2,060,997 1,762,570 8,229,464 Depletion Age Body Weight FCR IP See important disclosure at the back of this report 5

6 Exhibit 13. Performance Report of Contract Grower Region Central Java on 2018 Description Jan Feb Mar Apr Population 1,073,000 1,299,547 1,152,925 1,387,537 Depletion Age Body Weight FCR IP Exhibit 14. Performance Report of Own Farm Region Central Java on 2018 Description Jan Feb Mar Apr Population 350, , , ,460 Depletion Age Body Weight FCR IP Operational Performance JPFA is committed to: 1) improving biosecurity, 2) improving performance, 3) improving skills production and sales teams, 4) and closed house system expansion. The prices of broilers in its own farm Sumogawe have risen significantly YTD in 2018, much more than historically. The IP in its own farm Sumogawe alone in May 2018 reached 395. Exhibit 15. Price LB CCF Own Farm Sumogawe, in IDR ,937 16,488 15,129 19,259 Exhibit 16. Index Performance (IP) Own Farm Sumogawe Jan Mar May See important disclosure at the back of this report 6

7 Exhibit 17. Income Statement Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Revenue 27,063 29,603 33,897 37,534 41,666 COGS (21,584) (24,572) (27,761) (30,752) (34,112) Gross profit 5,479 5,031 6,137 6,782 7,553 EBITDA 3,717 2,849 3,643 3,996 4,433 Oper. profit 3,092 2,170 2,866 3,160 3,533 Interest income Interest expense (510) (569) (441) (432) (394) Forex Gain/(Loss) (68) Income From Assoc. Co s Other Income (Expenses) Pre-tax profit 2,767 1,741 2,533 2,836 3,248 Income tax (595) (633) (633) (709) (812) Minority interest (107) (110) (161) (180) (206) Net profit 2, ,739 1,947 2,230 Core Net Profit 2, ,739 1,947 2,230 Exhibit 18. Balance Sheet Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Cash & cash equivalent 2,701 1,642 1,725 1,118 1,038 Receivables 1,297 1,627 1,674 1,854 2,058 Inventory 5,500 6,414 6,330 6,598 6,925 Other Curr. Asset 1,246 1,506 1,884 2,087 2,316 Fixed assets - Net 7,512 8,346 9,329 10,442 11,707 Other non-curr.asset 983 1,553 1,528 1,551 1,577 Total asset 19,251 21,089 22,470 23,649 25,620 ST Debt 2, ,574 1,726 1,508 Payables 2,528 3,498 3,511 4,007 4,576 Other Curr. Liabilities Long Term Debt 3,609 5,272 3,436 3,436 3,287 Other LT. Liabilities 1,075 1,251 1,314 1,454 1,612 Total Liabilities 9,839 11,246 11,279 11,111 11,524 Shareholder'sFunds 8,843 9,209 10,602 11,946 13,500 Minority interests Total Equity & Liabilities 19,212 21,041 22,470 23,649 25,620 See important disclosure at the back of this report 7

8 Exhibit 19. Cash Flow Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Net income 2, ,739 1,947 2,230 Depreciation and Amort Change in Working Capital 239 (1,517) 87 (399) (494) OtherOper. Cash Flow Operating Cash Flow 3, ,658 2,631 2,828 Capex (1,329) (1,513) (1,760) (1,949) (2,164) Others Inv. Cash Flow (132) (536) Investing Cash Flow (1,461) (2,049) (1,708) (1,946) (2,164) Net change in debt (953) 201 (61) (848) (367) New Capital Dividend payment (232) (675) (346) (603) (675) Other Fin. Cash Flow 391 (288) (423) (289) (233) Financing Cash Flow (93) (758) (831) (1,740) (1,276) Net Change in Cash 2,112 (2,303) 120 (1,054) (611) Cash - begin of the year 901 2,701 1,642 1,725 1,118 Cash - end of the year 2,701 1,642 1,725 1,118 1,038 Exhibit 20. Key Ratios Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Growth (%) Sales EBITDA 62.4 (23.4) Operating profit 78.9 (29.8) Net profit (51.7) Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) Interest Coverage (x) Source : JPFA, Danareksa Estimates See important disclosure at the back of this report 8