Broker's take: DBS Equity Research maintains 'buy' on Japfa

DBS Equity Research in a report on Monday reiterated its "buy" rating for shares of mainboard-listed agri-food company Japfa, with a target price of S$0.635.

This follows Japfa's announcement on early Monday morning that it will acquire the remaining 15 per cent of its Myanmar subsidiary, Japfa Comfeed Myanmar (JCMA), for US$5.7 million, which DBS Equity Research said values JCMA at US$38 million.

The acquisition will have insignificant impact on Japfa's FY2015 earnings, said the report. "Assuming JCMA contributes US$11 million to Japfa's FY2015 earnings, we estimate the impact would be 1.7 per cent on consolidated earnings."

While the impact is immaterial, the research house said it believes the potential growth in the Myanmar market should continue to contribute to Japfa's earnings growth over the long term.

Moreover, broiler day-old-chick (Doc) prices in Indonesia have recovered to between 3,100 and 5,100 Indonesian rupiah (S$0.33 to S$0.54) per chick (depending on the brands), which implies improved demand from poultry farmers as broiler prices (Jan15) have also recovered to 18,250 Indonesian rupiah per kg live, said the research house.

"We are maintaining FY2015 Doc and broiler average selling price forecasts of 4,650 and 15,965 Indonesian rupiah respectively, pending Q1 FY2015 pricing details," said the report.

DBS Equity Research added that it continues to expect strong long-term potential in both Doc and broiler demand in Indonesia, premised on an expanding middle class and still low consumption per capita. "We also believe government efforts to reduce Doc grand-parent stock import quota would have positive price implications in 2016," said the report.