JPFA jostled for 2Q19 rosier performance as its animal feeds division became the revenues maker amid headwinds of a slowdown in the agro-food business of 2Q19. JPFA’s fundamental is still robust albeit the intense poultry competition since the early of 2019.

Rosier Quarterly Performance

In 2Q19, JPFA booked revenues of IDR9.2 trillion (+9% YoY, +13% QoQ), gross profits of IDR1.8 trillion (-9% YoY, +33% QoQ), EBITDA of IDR1.1 trillion (-30% YoY, +40% QoQ), and net profits of IDR519 billion (-23% YoY, +67% QoQ). COGS surged to IDR7.7 trillion (+15% YoY, +8% QoQ) due to raw material cost ballooning to IDR6.6 billion (+112% YoY, -3% QoQ). In addition, GPM increased to 19% (vs. 1Q19 of 16%), and NPM grew to 5% (vs. 1Q19 of 3%).

Volatile Prices of Broiler

During 2Q19, prices of broiler were at IDR17,000-IDR19,000, lower than were those of 2018. The volatile prices hit the commercial farm & consumer products segment hardest as the segment posted only IDR3.8 trillion (+2% YoY). We project that prices of broiler from August to September, will pick up at the range of IDR20,000-IDR22,000, and in 2019F, JPFA is likely to obtain revenues of IDR13.5-IDR14 trillion, posted by the commercial farm & consumer products segment.

Animal Feeds Segment as JPFA’s Backbone

The Animal Feeds segment was fundamental to the 2Q19 performance as it attained revenues of IDR3.5 trillion (+23% YoY, +6% QoQ). The 1Q19 backdrop when local poultry farming made use of substantial feeds to boost chicken supplies to markets ahead of Idulfitri impacted on the 2Q19 sound performance of animal feeds segment. The segment succeeded in posting operational margins of IDR886 billion (+40% YoY, +71% QoQ); thus, JPFA is estimated to be capable of receiving a 2019F revenue of IDR14.8-IDR15.5 trillion contributed by the animal feeds segment.

BUY Rating with the Price Target of IDR1,940

JPFA is the second’s biggest agro-food company in term of market share domination, has a robust animal feeds segment, and benefits from the likely rising prices of broiler at the end of 2019. Those are basic reasons for our BUY recommendation on JPFA at the price target of IDR1,940 or a 22.8% upside potential based on a 4.8x (-1 SD) forward EV/EBITDA. JPFA is currently traded at a 6.7x 2019F EV/EBITDA.

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