12 Things To Know About Japfa Ltd’s 2018 Second-Quarter Results
Japfa Ltd (SGX: UD2) is an industrial agri-food company that produces and sells dairy products, protein staples and packaged food products in Asia. It has been one of the top-performing small cap stocks listed in Singapore over the last year, up by more than 20% year-to-date. Here are some of the key highlights from its earnings update for the second quarter of 2018:
1. Revenue for the quarter ended 30 June 2018 was up 14% to US$901 million. Operating profit surged 107.6% to US$108.1 million as operating margin widened by 5.4 percentage points to 12.0%.
2. The chart below shows the rolling core profit after tax and minority interest (PATMI) with foreign exchange impact over the last five years:
Source: Japfa Ltd’s earnings presentation
3. As you can see, rolling core PATMI increased sequentially and on a year-on-year in the latest quarter. The group has seen core PATMI increase from the end of 2017 after posting disappointing results that year.
4. The group breaks down its business into four segments — PT Japfa Tbk (its listed subsidiary in Indonesia), animal protein, dairy and consumer food.
5. In the second quarter of 2018, the group delivered growth in PT PT Japfa Tbk, animal protein segment and dairy food. Its consumer business operating loss widened by 40.1%. The table below shows the key figures from each segment:
Source: Author’s compilation of data from earnings release
6. PT Japfa Tbk recorded higher revenue on the back of higher sales volume in the poultry division, in particular poultry feed and aquaculture. Despite foreign exchange losses due to the weakening Indonesian rupiah, profit after tax still grew 64.2%.
7. The animal protein segment fared much better this year due in part to the recovery of the swine sector in Vietnam. Last year, China restricted swine imports from Vietnam which impacted Japfa’s selling prices.
8. Japfa’s dairy business saw growth on the back of raw milk sales in China. The group is looking to improve milk yields and volume to mitigate price fluctuations and profitability in this sector.
9. Lastly, its consumer business worsened due to higher expenditure on marketing and lower contribution from its ambient food on the back of higher chicken raw material prices.
10. As of June 2018, the group had total debt of US$1.2 billion and US$160.8 million, giving it a net debt position of US$1.04 billion. Investors should continue to monitor the group’s balance sheet going forward.
11. Japfa completed the acquisition of the remaining stake in its dairy business. It now owns 100% of both subsidiaries, AIH1 and AIH2, after previously having a 61.9% and 64.4% stake, respectively.
12. At the time of writing, shares of Japfa exchanged hands at S$0.645 per share, which translates to a price-to-book ratio of 1.2 and a price-to-earnings multiple of 17.7.