Analysts are bullish on the company
(not vested)
Japfa started at “add”, $1.25 target by CIMB
CIMB has started coverage on Japfa, giving it an “add” rating and a price target of $1.25, based on a sum-of-the-parts valuation.
The maker of protein foods, including milk, poultry and beef, is a play on the rising wages of Asia’s lower-middle income population and the inevitable shift in food sources to industrialised farms, according to CIMB analysts Kenneth Ng and Justin Chiam.
“With beef and Indochina as future growth pillars, Japfa is set to become a truly diversified agri-food business that spans the entire value chain, producing different animal proteins and entrenching itself in Asia’s most populous markets,” they say in a note.
The company, which made its trading debut in August, produces and sells animal protein in Indonesia, Vietnam and China, and plans to sell meat in India and Myanmar.
These are Asia’s most populous developing nations, where animal protein consumption is outpacing GDP growth, Ng and Chiam note.
In China, Japfa is likely to benefit from a shortage in milk production arising from public concerns over food safety, they add.
“Since the melamine incident in 2008, buyers have flocked to foreign imports or established milk retail brands, augmenting their bargaining power over small dairy farms.
“Faced with the poor selling prices for milk, the small farms sold their livestock to the beef market as beef prices tripled in the past six years.”
With large, industrialised dairy farms like Japfa’s investing in new capacity as small farms exit, the quality of milk produced in China is likely to be higher, they say.
“They are the answer to both China’s milk quality issues and supply shortage.”
Shares of Japfa traded at 87 cents, up 1.2%, at 0331 GMT.
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