Brokers' take

Japfa Ltd | Buy (maintained) Dec 12 close: S$0.75 Target price: S$0.99 Maybank Kim Eng Research, Dec 12

Fuelled by the rebound in PT Japfa Tbk and animal protein other (APO) divisions, year-to-date FY18 has been far stronger than we expected. Upcoming Indonesian presidential elections, our forecast Indonesian rupiah appreciation and a softening in soybean meal should provide further tailwinds in coming quarters. Taking stock of various protein, dairy and commodity input prices, we raise FY18E/FY19E/FY20E core profit estimates by 23 per cent/9 per cent/9 per cent, and target price by 15 per cent to S$0.99.

Apart from usual average selling price swings, regulation change, raw material cost, disease and weather related risks inherent to agri businesses, the specific risks to our outlook lie in the consumer foods business posting higher than forecast losses, emerging Asia currency weakness versus USD and risk of illegal Chinese pork imports into Vietnam.

We value Japfa on a sum-of-parts based on ascribed Ebitda (earnings before interest, tax, depreciation and amortisation) multiples for its business segments of: 1) PT Japfa TBK; 2) Dairy; and 3) APO and, 4) Consumer Foods. On the back of various forecast revisions, our target price after incorporating a 10 per cent holding company discount has been raised to S$0.99. Note we continue to not ascribe any value to the Consumer Foods business.

We believe the market has yet to fully appreciate Japfa's diversified business model due to a number of factors, such as complexity of the business, thin broker coverage, fairly short listing history and short track record of earnings. We also believe this valuation gap should narrow with the market concerns over the drag of losses of the previous year in smaller business APO and consumer food reversing and narrowing, respectively.

Sunningdale Tech | Hold (maintained) Dec 12 close: S$1.40 Target price: S$1.50 UOB Kay Hian Research, Dec 12

Sunningdale Tech on Dec 11 entered into a sale and purchase agreement to dispose of its property in Zhongshan, China for an aggregate cash consideration of S$28.9 million . . . This disposal is expected to boost cash flow and improve Sunningdale's balance sheet notably; the net gain is equivalent to 56.3 per cent of 2018 net profit and could boost 2018F net asset value per share by 7 Singapore cents, or 3.6 per cent.

We maintain 2018-20 net profit forecasts as the net gain from the disposal of the property is deemed a non-core item. Risks include unfavourable foreign exchange rates, further pricing pressure from customers and lower-than-expected utilisation. Maintain "hold" and target price of S$1.50, pegged to peers' average 2019F price/earnings of 10.6 times.

Compiled by Leila Lai

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