Indonesian Companies in Focus: Japfa Comfeed Indonesia
After global equity firm KKR Jade Investment Pte Ltd acquired a 10.44 percent stake in Japfa Comfeed Indonesia, the latter is in a position to reduce its short-term debt, and this will have a positive impact on the company's financial profile. Japfa Comfeed Indonesia is one of the leading integrated agri-food companies in Indonesia and has a main focus on animal feed manufacturing, chicken breeding, poultry processing and aquaculture farming. It is a unit of Singapore-based Japfa, a pan-Asian agro-food firm.
The deal between KKR Jade Investment Pte Ltd and Japfa Comfeed Indonesia involves the issuance of 750 million new shares by Japfa Comfeed Indonesia that are purchased by KKR in a private placement worth about USD $52.9 million. Furthermore, parent company Japfa sold 441.7 million shares in its Indonesian subsidiary to KKR for approximately USD $28.3 million. KKR was eager to acquire a stake in Japfa Comfeed Indonesia as it sees great potential in the company due to Indonesia's rising middle class, rapid urbanization, and rising protein consumption. Meanwhile, Japfa Comfeed Indonesia will receive fresh funds and can also benefit from KKR's expertise and experience in the agriculture and food sector.
Ciptadana Securities stated that the new funds that were received by Japfa Comfeed Indonesia can be used to lower the company's short-term debt. Up to the first quarter of 2016 Japfa Comfeed Indonesia's interest expenses reached IDR 145 billion (approx. USD $10.9 million). Meanwhile, RHB OSK Securities stated Japfa Comfeed Indonesia's debt ratio can be cut to 0.8 this year (down from 0.9 last year) due to the influx of fresh funds. RHB OSK Securities therefore also revised up its forecast for Japfa Comfeed Indonesia's net profit in 2016 from IDR 740 billion to IDR 799 billion. However, Ciptadana Securities put its forecast at IDR 1,3 billion this year (see table below).
Future Projection Japfa Comfeed Indonesia's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Sales | 24,459 | 25,023 | 34,253 | 39,910 | 43,897 |
| Operating Income |
1,276 | 1,728 | 2,481 | 3,347 | 4,394 |
| Net Income |
332 | 468 | 1,290 | 1,846 | 2,584 |
| P/E Ratio (x) | 32.9 | 23.3 | 8.5 | 5.9 | 4.2 |
| P/BV (x) | 2.2 | 1.9 | 1.7 | 1.4 | 1.1 |
in billion IDR rupiah unless otherwise stated
Source: Ciptadana Securities (27/06/2016)
Three factors are expected to impact positively on the performance of Japfa Comfeed Indonesia in 2016. Firstly, the annual Idul Fitri celebrations are set to start in the first week of July and will boost consumption of chicken meat. Secondly, the government continued its program to destroy millions of chickens in order to ease supply swings. Earlier, the supply-demand chain had been disturbed and the low poultry prices had pushed many smaller local breeders out of business. By curtailing supplies, prices of day old chicks (DOCs) will rise and this boosts revenue and net profit. Thirdly, the rupiah has been stable so far this year. Chicken breeders need to import soybeans and corn and therefore a weakening rupiah would imply foreign exchange losses.
Ciptadana Securities recommends investors to purchase shares of Japfa Comfeed Indonesia. It set the target price for the firm's shares at IDR 1,200 a piece (reflecting a price-to-earnings ratio of 9.9 times). On Monday's trading day, shares of Japfa Comfeed Indonesia rose 3.26 percent to IDR 1,110 per share. So far this year, the company's shares have surged a staggering 74.80 percent.
Japfa Comfeed Indonesia - JPFA:
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