Reaping Profit from Broiler Division We project that the government regulation establishing the lowest selling price for broiler chickens is potential for giving a more stable profit

• 62 21 797 6202, ext:138
• -

  51.7% 62.3% 20.7%

  ROA

  Reaping Profit from Broiler Division We project that the government regulation establishing the lowest selling price for broiler chickens is potential for giving a more stable profit margin. We oversee that only two out of 12 months in 2017, the selling price for broiler chickens topped the lowest selling price for broiler set by the government.

  Margin Contraction 2016 was the exceptional year when low prices for agriculture commodities flocking market were attributable to EBIT margin of the Animal Feed segment to settle at 13.4%. The Animal Feeds segment posted the last 4-year EBIT margin average of was 11.4%; indeed, its 2017 EBIT margin tumbled into 9.7% underlined by the high price of local corn.

  Upswing of 9.4% in FY2017 Sales JPFA posted the upswing of 9.4% in 2017’s sales higher than the upswing of 8.4% in 2016’s sales. However, it posted decline of 15% in 2017’s EBITDA compared to the incline of 55% in 2016’s EBITDA. The Animal Feeds segment as the biggest contributor to the overall sales experienced the contraction of EBIT margin from 13.4% in 2016 into 9.7% in 2017.

  Abs. Ret. 15.0% -5.4% 10.7% -4.5% Rel. Ret. 15.8% -1.0% 7.7% -18.7%

  12M

  3M

  1M

  Share Price Performance YTD

  Dividend yield 1.0% 3.8% 1.6% 2.6% Source: Company Data, Bloomberg, NHKS Research

  14 50 24 39

  P/E 8.0x 14.9x 10.6x 8.8x P/BV 1.8x 1.5x 1.5x 1.4x EV/EBITDA 6.0x 6.9x 6.7x 5.7x DPS (IDR)

  16.3% 9.2% 11.7% 13.2%

  ROIC

  11.3% 4.9% 7.3% 8.2%

  26.7% 10.4% 15.5% 16.4%

  Please consider the rating criteria & important disclaimer Company Report | Mar 28, 2018 Japfa Comfeed Indonesia Tbk (JPFA) Earnings Remain Satisfactory Buy Dec 2018 TP (IDR) 1,820 Consensus Price (IDR) 1,715 TP to Consensus Price +6.1% vs. Last Price +24.7% Shares data

  ROE

  7.6% 3.4% 4.8% 5.1%

  BVPS (IDR) 821 858 976 1,108 EBITDA margin 13.2% 10.2% 10.1% 10.5% NPM

  EPS growth 340.9%

  EBITDA 3,563 3,022 3,424 4,044 Net profit 2,065 997 1,619 1,955 EPS (IDR) 181 87 142 171

  Sales growth 8.2% 9.4% 14.2% 14.3%

  Sales 27,063 29,603 33,793 38,625

  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

  6.80 Foreign Ownership 99.9%

  5.07 Avg. Trd Val - 3M (bn)

  37.0 Outstanding sh.(mn) 11,411 Market Cap (IDR bn) 17,001 Market Cap (USD mn) 1,275 Avg. Trd Vol - 3M (mn)

  Last Price (IDR) 1,460 Price date as of Mar 27, 2018 52 wk range (Hi/Lo) 1,710/1,075 Free float (%)

  Target Price IDR1,820 We use an estimated forward EV/EBITDA of 6.2x (0.6 SD higher than the 3- year average of 5.4x) as the basis of valuation method for obtaining the target price. The target price implies a 2018E EV/EBITDA of 7.4x. Now, JPFA was traded at a 2017E EV/EBITDA of 8.7x.

  JPFA A Glance at JPFA JPFA is one of the biggest and 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 Asia Pacific JPFA with the total asset topping USD1 billion has the highest potential for growth in profit with the cheapest P/E of 10.6x ; therefore, these qualities nominate JPFA as the most attractive stock pick in Asia Pacific.

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

  JPFA 1,275 1,552 62.3% 4.8% 15.5% 10.6x 1.5x 1.6% CPIN 4,082 1,788 31.4% 6.2% 20.6% 15.9x 3.1x 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 | FY2017 Sales Trend | 2014 - 2018

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

  Sales Growth | 2013 - 2017 Feed Division Metric | 2013 - 2017

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

  Feed Division Sales Growth | 2016 - 2017 Feed Division EBIT Margin | 2016 - 2017

  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

  03/15/2017 Buy 2,240 (Dec 2017) 1,595 2,029 +40.4% +10.4% 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%

  Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication : Greater than +15%

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

  Summary of Financials

DISCLAIMER

INCOME STATEMENT BALANCE SHEET

  

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errors, omissions, misstatements, negligence, inaccuracy arising herefrom. All rights reserved by PT NH Korindo Securities Indonesia ^{JPFA Summary Last Price (IDR) 1,460}

^{Target Price (IDR) 1,820 2016/12A 2017/12A 2018/12E 2019/12E}

^{Rating: Buy ROE 26.7% 10.4% 15.5% 16.4% ROA 11.3% 4.9% 7.3% 8.2% ROIC 16.3% 9.2% 11.7% 13.2% EBITDA/Equi ty 46.0% 31.5% 32.7% 34.0%}

^{in IDR Bn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 11.3% 4.9% 7.3% 8.2%}

^{Sales 27,063 29,603 33,793 38,625 Ca s h Di vi dend IDR bn) 160 570 275 447}

^{Growth (% y/y) 8.2% 9.4% 14.2% 14.3% Di vi dend Yi el d (%) 1.0% 3.8% 1.7% 2.7%}

^{Cost of Revenue (21,584) (24,572) (27,901) (31,813) Pa yout Ra ti o (%) 34.1% 27.6% 27.6% 27.6%}

^{Gross Profit 5,479 5,031 5,892 6,812 DER 62.6% 62.0% 54.5% 41.3%}

^{Gross Margin 20.2% 17.0% 17.4% 17.6% Net Gea ri ng 91.0% 89.7% 74.8% 54.3%}

^{Opera ti ng Expens es (2,558) (2,781) (3,303) (3,775) LT Debt to Equi ty 38.5% 53.8% 39.7% 35.0%}

^{EBIT 2,921 2,250 2,589 3,036 Ca pi ta l i za ti on Ra ti o 38.5% 38.3% 35.3% 29.2%}

^{EBIT Margin 10.8% 7.6% 7.7% 7.9% Equi ty Ra ti o 48.7% 46.4% 48.1% 52.0%}

^{Depreci a ti on 642 772 835 1,008 Debt Ra ti o 30.5% 28.8% 26.2% 21.5%}

^{EBITDA 3,563 3,022 3,424 4,044 Fi na nci a l Levera ge 221.7% 200.9% 201.5% 194.8%}

^{EBITDA Margin 13.2% 10.2% 10.1% 10.5% Current Ra ti o 213.0% 234.6% 199.2% 212.3%}

^{Interes t Expens es (510) (569) (556) (556) Qui ck Ra ti o 75.3% 66.7% 54.8% 45.7%}

^{EBT 2,767 1,741 2,429 2,933 Ca s h Ra ti o 52.0% 34.4% 30.4% 16.9%}

^{Income Ta x (595) (633) (607) (733) Cash Conversion Cycle 83.0 80.1 74.4 74.4 Mi nori ty Interes t (107) (110) (203) (245) Pa r Va l ue (IDR) 200 200 200 200}

^{Net Profit 2,065 997 1,619 1,955 Tota l Sha res (mn) 11,411 11,411 11,411 11,411}

^{Growth (% y/y) 340.9% -51.7% 62.3% 20.7% Sha re Pri ce (IDR) 1,455 1,300 1,460 1,460}

^{Net Profit Margin 7.6% 3.4% 4.8% 5.1% Ma rket Ca p (IDR tn) 16.6 14.8 16.7 16.7 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 1,891 1,014 Pri ce /Ea rni ngs 8.0x 14.9x 10.3x 8.5x}

^{Recei va bl es 1,212 1,541 1,513 1,729 Pri ce /Book Va l ue 1.8x 1.5x 1.5x 1.3x}

^{Inventori es 6,259 7,332 8,091 9,225 Pri ce/Sa l es 0.6x 0.5x 0.5x 0.4x}

^{Total Current Assets 11,061 11,189 12,377 12,747 PE/EPS Growth 0.0x -0.3x 0.2x 0.4x}

^{Net Fi xed As s ets 7,541 8,386 9,751 10,685 EV/EBITDA 6.0x 6.9x 6.5x 5.5x}

^{Other Non Current As s ets 649 1,514 1,038 883 EV/EBIT 7.3x 9.3x 8.7x 7.4x}

^{Total Assets 19,251 21,089 23,166 24,315 EV (IDR bn) 21,249 20,836 22,413 22,439}

^{Pa ya bl es 2,317 3,216 3,652 4,164 Sa l es CAGR (3-Yr) 8.1% 6.6% 10.5% 12.6%}

^{ST Ba nk Loa n 2,260 797 1,647 797 EPS CAGR (3-Yr) 51.4% 43.2% 51.2% -1.8%}

^{Other Current Liab. 616 756 914 1,044 Ba s i c EPS (IDR) 181 87 142 171 LT Debt 3,609 5,272 4,422 4,422 Di l uted EPS (IDR) 181 87 142 171}

^{Other Non Current Li a b. 1,075 1,251 1,391 1,239 BVPS (IDR) 821 858 976 1,108}

^{Total Liabilities 9,878 11,293 12,026 11,667 Sa l es PS (IDR) 2,372 2,594 2,962 3,385}

^{Shareholders' Equity 9,373 9,796 11,139 12,648 DPS (IDR) 14 50 24 Net Income 2,065 997 1,619 1,955 DCF (IDR bn) 39 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Deprec & Amorti za ti on 642 772 835 1,008 NOPAT 2,293 1,432 1,942 2,277}

^{Chg. In Worki ng Ca pi ta l 73 (965) (345) (604) +Depr./Amor. 642 772 835 1,008}

^{CFO 2,780 805 2,109 2,358 -CAPEX (787) (1,537) (2,200) (1,941)}

^{Ca pex (787) (1,537) (2,200) (1,941) -Incr. (Decr.) i n Worki ng Ca p. 73 (965) (345) (604)}

^{CFI (524) (1,399) (1,585) (1,938) (Unl evered) FCFF 2,221 (297) 231 739}

^{Di vi dends Pa i d (240) (536) (275) (447) WACC}

^{Net Borrowi ng (PMT) (829) 200 - (850) Cos t of Debt (Ta x Adj.) 9.3% 7.6% 8.8% 8.9%}

^{CFF (456) (466) (275) (1,297) Cos t of Equi ty (COE) 10.5% 12.3% 12.3% 12.3%}

^{Net Changes in Cash 1,800 (1,059) 249 (876) WACC (%) 10.2% 10.9% 11.4% 11.5%}

^{RIM Sprea d (FROE-COE) (%) 23.3% -1.7% 4.2% 5.2% Res i dua l Income (IDR bn) 1,421 (156) 414 585}

^{By Geography % Shareholders % Equi ty Cha rge 643 1,153 1,205 1,370}

^{Si nga pore 75.2 Ja pfa PTE LTD 51.0 EVA Uni ted Sta tes 5.8 KKR Ja de INV 12.0 Inves ted Ca pi ta l (IDR bn) 12,934 15,242 15,865 17,209 Irel a nd 0.2 Va ngua rd Group 2.2 ROIC-WACC (%) 7.5% -1.5% 0.9% 1.7% Luxembourg 0.2 Di mens i ona l Fund 1.3 EVA (IDR mn) 971 (235) 139 299}

  OWNERSHIP PROFITABILITY & STABILITY March 27, 2018 _{Dec 2018}

  ^{Analyst: Joni Wintarja} CASH FLOW STATEMENT DCF, RIM & EVA