Brokers’ take: CGS-CIMB upgrades Japfa to ‘add’ on expected return to the black
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Michelle Zhu
CGS-CIMB has upgraded its call on industrial agri-food company Japfa to “add” from “reduce”, as it now expects the group to report a FY2023 net profit of US$5.8 million, as opposed to its previously forecast US$13.9 million net loss.
On Thursday (Nov 2), analyst Tay Wee Kuang noted better pricing dynamics and improved operating expenditure control in the group’s third-quarter financials.
He believes Japfa should remain profitable in Q4 – despite some likely margin pressures – to finish FY2023 in the black.
CGS-CIMB’s target price on the stock was lifted to S$0.28 from S$0.20 to account for higher valuations, as Tay said Japfa’s share price should rerate after a few consecutive quarters of profit.
The research house now values Japfa at 0.5 times price-to-book based on its FY2024 estimates, versus its previous trough valuation of 0.35 times. This stands at about half a standard deviation point below the stock’s 10-year average.
CGS-CIMB raised its FY2024 earnings per share (EPS) estimates by 5.5 per cent, and FY2025 EPS estimates by 7 per cent.
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“Although Vietnam swine prices have declined 12.1 per cent in the quarter to date, management shared that better cost efficiencies should continue to put Japfa’s animal protein others (APO) segment in the black,” said Tay.
“Nevertheless, we think APO’s turnaround remains shaky given the uncertain outlook for Vietnam’s economy.”
Shares of Japfa were S$0.01 or 4.8 per cent higher at S$0.22 as at Thursday’s midday trading break.
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