JPFA The 2018 Earnings Outlook Is Bright 20180523 NHKS Company Report (English)

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  More Regulated Costing We estimate that the Minister of Trade’s Regulation Number 58/2018 on the Lowest Broiler Reference Prices of IDR17,000/kg and the Highest Broiler Reference Prices of IDR19,000/kg results in an easy review of production costs boosting stable profitability for the poultry industry.

  1Q17 into IDR433 billion in 1Q18. The main driver for the fantastic growth is the turnaround in the commercial farm and consumer products from posting the operational loss of IDR70 billion in 1Q17 into posting the operational profit of IDR247 billion in 1Q18.

  Fantastic Growth in Profit JPFA posted the fantastic growth of 491% in profit from IDR73 billion in

  1Q17 into IDR7.86 trillion in 1Q18. The main bolster to the buoyant sales was the surge of 27% in sales from IDR2.6 trillion in 1Q17 into IDR3.4 trillion in 1Q18 posted by the commercial farm and consumer products segment. Furthermore, the animal feeds also posted the growth of 12% from IDR2.46 trillion in 1Q17 into IDR2.7 trillion in 1Q18.

  Buoyant Sales JPFA posted the buoyant growth of 18.7% in sales from IDR6.62 trillion in

  Abs. Ret. 20.4% -0.6% -0.3% 33.8% Rel. Ret. 29.9% 8.6% 12.5% 33.7%

  12M

  3M

  1M

  Share Price Performance YTD

  Dividend yield 1.0% 3.8% 1.5% 2.6% Source: Company Data, Bloomberg, NHKS Research

  BVPS (IDR) 821 858 879 1,016 EBITDA margin 13.2% 9.9% 9.9% 9.9% NPM 7.6% 3.3% 4.9% 5.2% ROE 26.7% 10.2% 16.6% 18.7% ROA 11.3% 4.9% 7.7% 8.9% ROIC 16.3% 9.4% 12.1% 14.3% P/E 8.0x 15.1x 10.8x 8.8x P/BV 1.8x 1.5x 1.8x 1.5x EV/EBITDA 6.0x 7.1x 6.7x 5.7x DPS (IDR)

  Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Report | May 23, 2018 Japfa Comfeed Indonesia Tbk (JPFA) The 2018 Earnings Outlook Is Bright Buy Dec 2018 TP (IDR) 2,000 Consensus Price (IDR) 1,838 TP to Consensus Price +8.8% vs. Last Price +28.6% Shares data

  EPS growth 340.9% -52.6% 68.4% 22.3%

  EBITDA 3,563 2,933 3,359 3,864 Net profit 2,065 979 1,649 2,016 EPS (IDR) 181 86 145 177

  Sales growth 8.2% 9.4% 14.2% 15.0%

  Sales 27,063 29,603 33,793 38,864

  Japfa Comfeed Indonesia , Tbk | Summary (IDR bn) 2016/12A 2017/12A 2018/12E 2019/12E

  Joni.wintarja@nhsec.co.id

  Basic Industry Poultry Bloomberg JPFA IJ Reuters JPFA.JK Joni Wintarja

  5.33 Foreign Ownership 99.9%

  3.38 Avg. Trd Val - 3M (bn)

  37.0 Outstanding sh.(mn) 11,411 Market Cap (IDR bn) 18,599 Market Cap (USD mn) 1,323 Avg. Trd Vol - 3M (mn)

  Last Price (IDR) 1,555 Price date as of May 22, 2018 52 wk range (Hi/Lo) 1,650/1,110 Free float (%)

  Target Price of IDR2,000 We use an estimate of forward EV/EBITDA of 7.0x (1SD higher than the 3- year average of 5.6x) as the basis for the valuation method for obtaining the target price implying a 2018E EV/EBITDA of 8.1x. JPFA is currently traded at a 2018E EV/EBITDA of 6.7x.

  A Glance at JPFA JPFA is one of the biggest and most prominent agro-food companies in Indonesia because of its commitment to providing quality animal

• –based protein since 1975. The takeaway key for JPFA’s success roots from its integrated, inclusive, and comprehensive services given to its customers through its robust distribution networks, and wide-ranging agents across Indonesia. It is committed to creating and giving added values to its industrial partners through its robust production chains from quality animal feeds formulations, high
• –quality day-old chicks, broiler chickens, fish, shrimps, and cows farms to varied and integrated processed food products.

  JPFA’s Competitiveness in the Asia Pacific JPFA with the total asset topping USD1 billion has the highest potential for growth in profit with the cheapest P/E of 10.8x; therefore, these qualities nominate JPFA as the most attractive stock pick in the Asia Pacific.

  Asia Pacific Poultry Market Total Asset Net Profit Net Profit Dividend Company Cap ROE P/E P/BV (USD mn) Growth Margin Yield (USD mn)

  JPFA 1,323 1,552 68.4% 4.9% 16.6% 10.8x 1.8x 1.5% CPIN 3,314 1,788 17.9% 5.7% 17.7% 20.3x 3.4x 2.0% MAIN 113 289 648.3% 2.7% 8.5% 10.3x 0.8x 1.4%

  Thailand

  CHAROEN POKPHAND FOODS 6,895 18,221 3.8% 3.0% 10.1% 12.8x 1.2x 3.8%

  Malaysia

  CAB CAKARAN CORP BHD 146 252 68.7% 3.9% 19.2% 8.6x 1.4x 0.3%

  India

  GODREJ AGROVET LTD 1,899 496 -5.7% 5.1% 27.8% 45.8x 11.8x 2.0% AVANTI FEEDS LTD 1,506 163 162.4% 7.8% 45.0% 21.6x 3.7x 0.4%

  Vietnam

  MASAN GROUP CORP 4,689 2,798 11.1% 8.2% 20.6% 35.5x 7.2x 1.1%

  China

  CHUYING AGRO-PASTORA GROUP-A 1,934 2,439 -1.2% 14.3% 15.3% 16.3x 2.2x 1.7% TECON BIOLOGY CO LTD - A 1,188 647 11.6% 8.9% 14.6% 18.9x 2.6x 1.3% BAIYANG INVESTMENT GROUP -A 671 276 32.8% 2.9% 5.0% 42.9x 2.0x 0.5% NEW HOPE LIUHE CO LTD-A 4,994 5,387 -10.0% 4.1% 11.2% 13.8x 1.5x 6.7% JUEWEI FOOD CO LTD-A 2,152 283 26.4% 11.7% 28.7% 31.3x 8.2x 1.0% SHANDONG LONGDA MEAT FOOD-A 1,232 331 -16.1% 4.3% 10.5% 40.9x 4.1x 0.9%

  Source: Bloomberg, NHKS research

  Performance Highlights Sales Breakdown (exclude inter-segment) | 1Q18 Sales Trend | FY2014 - FY2018E

  Source: Company, NHKS research Source: Company, NHKS research

  JPFA Sales Growth | FY2013 - FY2018E Quarterly JPFA EBITDA Growth | 2016 - 2018

  Source: Company, NHKS research Source: Company, NHKS research

  Commercial Farm Division Sales Growth | 2015 - 2018 Commercial Farm Division EBIT Growth | 2015 - 2018

  Source: Company, NHKS research Source: Company, NHKS research

  Multiple Valuation Forward EV/EBITDA Band | Last 3 years Dynamic Forward EV/EBITDA Band | Last 3 years

  Source: NHKS research Source: NHKS research

  Rating and target price update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  06/22/2017 Buy 1,860 (Dec 2017) 1,350 1,532 +37.8% +21.4% 08/10/2017 Buy 1,710 (Dec 2017) 1,110 1,489 +54.1% +14.8% 11/10/2017 Buy 1,740 (Dec 2018) 1,275 1,628 +36.5% +6.9% 01/25/2018 Buy 1,820 (Dec 2018) 1,460 1,649 +24.7% +10.4% 03/28/2018 Buy 1,820 (Dec 2018) 1,460 1,715 +24.7% +6.1% 05/23/2018 Buy 2,000 (Dec 2018) 1,555 1,838 +28.6% +8.8%

  Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  Period: End of year target price Rating system based on a stock’s absolute return from the date of publication

  Buy : Greater than +15% Hold : -15% to +15% Sell : Less than -15%

  Summary of Financials

DISCLAIMER

  ROA 11.3% 4.9% 7.7% 8.9% ROIC 16.3% 9.4% 12.1% 14.3% EBITDA/Equi ty 46.0% 30.6% 33.9% 35.7%

in IDR Bn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 11.3% 4.9% 7.7% 8.9%

Sales 27,063 29,603 33,793 38,864 Ca s h Di vi dend IDR bn) 160 570 270 455

Growth (% y/y) 8.2% 9.4% 14.2% 15.0% Di vi dend Yi el d (%) 1.0% 3.8% 1.5% 2.6%

Cost of Revenue (21,584) (24,572) (27,901) (32,010) Pa yout Ra ti o (%) 34.1% 27.6% 27.6% 27.6%

Gross Profit 5,479 5,031 5,892 6,854 DER 62.6% 62.0% 59.2% 43.9%

Gross Margin 20.2% 17.0% 17.4% 17.6% Net Gea ri ng 91.0% 89.7% 73.4% 52.7%

Opera ti ng Expens es (2,558) (2,735) (3,303) (3,799) LT Debt to Equi ty 38.5% 53.8% 44.7% 38.7%

EBIT 2,921 2,296 2,589 3,055 Ca pi ta l i za ti on Ra ti o 38.5% 38.3% 37.2% 30.5%

EBIT Margin 10.8% 7.8% 7.7% 7.9% Equi ty Ra ti o 48.7% 46.4% 45.6% 50.1%

Depreci a ti on 642 637 770 809 Debt Ra ti o 30.5% 28.8% 27.0% 22.0%

EBITDA 3,563 2,933 3,359 3,864 Fi na nci a l Levera ge 221.7% 200.9% 212.8% 203.6%

EBITDA Margin 13.2% 9.9% 9.9% 9.9% Current Ra ti o 213.0% 234.6% 201.0% 221.3%

Interes t Expens es (510) (569) (574) (561) Qui ck Ra ti o 75.3% 66.7% 53.0% 53.4%

EBT 2,767 1,716 2,429 2,970 Ca s h Ra ti o 52.0% 34.4% 25.6% 21.2%

Income Ta x (595) (626) (617) (755) Cash Conversion Cycle

  JPFA Summary Last Price (IDR) 1,555

Target Price (IDR) 2,000 2016/12A 2017/12A 2018/12E 2019/12E

Rating: Buy ROE 26.7% 10.2% 16.6% 18.7%

INCOME STATEMENT BALANCE SHEET

  83.0

  73 (811) (325) (395) +Depr./Amor. 642 637 770 809

CFO 2,780 805 2,094 2,430 -CAPEX (787) (1,537) (2,200) (1,555)

Ca pex (787) (1,537) (2,200) (1,555) -Incr. (Decr.) i n Worki ng Ca p. 73 (811) (325) (395)

CFI (524) (1,399) (1,735) (1,442) (Unl evered) FCFF 2,221 (254) 176 1,138

Di vi dends Pa i d (240) (536) (270) (455) WACC

Net Borrowi ng (PMT) (829) 200 (137) (850) Cos t of Debt (Ta x Adj.) 9.3% 6.4% 8.5% 8.7%

CFF (456) (466) (461) (1,305) Cos t of Equi ty (COE) 10.5% 9.6% 9.6% 9.6%

Net Changes in Cash 1,800 (1,059) (101) (317) WACC (%) 10.2% 8.7% 9.3% 9.4%

  VALUATION INDEX Analyst: Joni Wintarja CASH FLOW STATEMENT DCF, RIM & EVA

  1.3 EVA (IDR mn) 971 139 452 777 OWNERSHIP PROFITABILITY & STABILITY May 22, 2018 Dec 2018

  0.2 Di mens i ona l Fund

  1.7 ROIC-WACC (%) 7.5% 0.9% 2.9% 4.9% Luxembourg

  0.3 Va ngua rd Group

  12.0 Inves ted Ca pi ta l (IDR bn) 12,934 15,242 15,865 15,962 Irel a nd

  5.7 KKR Ja de INV

  51.0 EVA Uni ted Sta tes

  75.5 Ja pfa PTE LTD

  80 709 1,054

By Geography % Shareholders % Equi ty Cha rge 643 899 940 962

Si nga pore

  RIM Sprea d (FROE-COE) (%) 23.3% 0.9% 7.2% 10.5% Res i dua l Income (IDR bn) 1,421

  40 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E Net Income 2,065 979 1,649 2,016 DCF (IDR bn)

Deprec & Amorti za ti on 642 637 770 809 NOPAT 2,293 1,458 1,931 2,279

Chg. In Worki ng Ca pi ta l

  80.1

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Total Liabilities 9,878 11,293 11,978 11,521 Sa l es PS (IDR) 2,372 2,594 2,962 3,406

Shareholders' Equity 9,373 9,796 10,028 11,590 DPS (IDR)

  616 756 909 1,045 Ba s i c EPS (IDR) 181 86 145 177 LT Debt 3,609 5,272 4,479 4,479 Di l uted EPS (IDR) 181 86 145 177

Other Non Current Li a b. 1,075 1,251 1,484 1,270 BVPS (IDR) 821 858 879 1,016

  17.7 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E

Ca s h 2,701 1,642 1,541 1,224 Pri ce /Ea rni ngs 8.0x 15.1x 10.8x 8.8x

Recei va bl es 1,212 1,541 1,645 1,860 Pri ce /Book Va l ue 1.8x 1.5x 1.8x 1.5x

Inventori es 6,259 7,332 8,091 8,945 Pri ce/Sa l es 0.6x 0.5x 0.5x 0.5x

Total Current Assets 11,061 11,189 12,087 12,772 PE/EPS Growth 0.0x -0.3x 0.2x 0.4x

Net Fi xed As s ets 7,541 8,386 8,667 9,413 EV/EBITDA 6.0x 7.1x 6.7x 5.7x

Other Non Current As s ets 649 1,514 1,252 926 EV/EBIT 7.3x 9.1x 8.7x 7.2x

Total Assets 19,251 21,089 22,006 23,110 EV (IDR bn) 21,249 20,836 22,631 22,098

Pa ya bl es 2,317 3,216 3,652 4,122 Sa l es CAGR (3-Yr) 8.1% 6.6% 10.5% 12.8%

ST Ba nk Loa n 2,260 797 1,454 604 EPS CAGR (3-Yr) 51.4% 42.4% 52.1% -0.8%

Other Current Liab.

  17.7

  14.8

  16.6

  72.5 Mi nori ty Interes t (107) (110) (163) (199) Pa r Va l ue (IDR) 200 200 200 200

Net Profit 2,065 979 1,649 2,016 Tota l Sha res (mn) 11,411 11,411 11,411 11,411

Growth (% y/y) 340.9% -52.6% 68.4% 22.3% Sha re Pri ce (IDR) 1,455 1,300 1,555 1,555

Net Profit Margin 7.6% 3.3% 4.9% 5.2% Ma rket Ca p (IDR tn)

  75.8

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