Alert: Takeaways from Citi’s Indonesia Consumer Corporate Day
Takeaways
from Hong Kong — Japfa Comfeed presented at our Indonesia Consumer
Corporate Day (20-22 Feb). Below are the key takeaways:
* Ahead
of industry in volume growth — On the back of rising purchasing power,
buoyed by favourable macroeconomic fundamentals, the poultry industry is
growing at 8-10% per year. Meanwhile, with its business consolidation
completed, JPFA can now be more focused on enhancing its organic growth.
As such, JPFA is optimistic that it can achieve volume growth of 10-12%
in 2013.
* Feedmill margins sustainable — Given its ability to
pass on cost prices, management guides for a sustainable margin in the
12-13% range.
* Poultry demand seasonality — Peak demand periods
would revolve around the Ramadhan/Idul Fitri festivities. Year end
festivities like Christmas will also provide a slight uplift in poultry
consumption. Hence, during those periods, DOC prices are
typically
firm or on an uptrend. The weakest period would be post Ramadhan/Idul
Fitri and when school starts as consumers are more focused on allocating
their disposable incomes to school fees and purchase of new school
supplies.
* Strong market reputation assures market share
dominance — Despite a growing number of poultry players in the sector,
CPIN and JPFA continue to maintain their top two positions, commanding a
combined c.60% market share, while the others are still below 10% each.
By being in the business for several
decades, they have gained the
reputation for quality products and services, hence keeping to a minimum
the switching of suppliers amongst farmers.
* Capex spending —
JPFA plans to allocate US$100m for capex in 2013, wherein 60-70% would
be for DOC expansion and the remaining for feed business.
* Stock
split — To improve liquidity, JPFA plans to do a stock split, with a
proposed ratio of 1:5. This is pending shareholders’ approval on 20
March 2013.
* Beef cattle business temporarily hampered by
import quota — The cattle business has stagnated due to import quotas
imposed by the government.
However, management is still optimistic on
the long-term growth potential of the business. We remain neutral on
this considering that the cattle business is still only a small portion
of the company’s overall business (less than 10% revenue
contribution).
me @ LOTS Trading Club (LTC)
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