Japfa’s dairy spin-off AustAsia looks to double its revenue over five years

JAPFA’S China dairy unit AustAsia Group is looking to double its revenue in the next five years, said chief executive Edgar Collins.

Most of this growth will come from the dairy business, but AustAsia has recently also developed a beef business that Collins termed a “significant opportunity” as supply is unlikely to catch up with demand in China. 

AustAsia recently completed its initial public offering (IPO) in Hong Kong, raising HK$99.3 million (S$17 million) in net proceeds primarily for the purchase of equipment and the construction of farm facilities, according to its prospectus. 

The debut has not been a huge success. The group ended its first trading day at HK$6.37, below the offer price of HK$6.40. Its shares have since fallen further – closing at HK$6.00 on Friday (Jan 6), about 6.3 per cent below the offer price.

Nevertheless, Collins believes the IPO was a good way to raise funds to “grow the business strategically”.

Japfa chief executive Tan Yong Nang said the listing of AustAsia also splits Japfa’s business neatly in terms of geography. AustAsia is solely focused on China, while the rest of Japfa is “South-east Asia and Indochina”, he said.

The spin-off was a way for Japfa to offer investors the choice to pick between the geographies they were comfortable with, Tan added. Investors who prefer putting their money on China may not favour South-east Asia, he said, while those who favour South-east Asia “may not understand China”.

“We have a lot of…different geographical area investor needs,” Tan said.

Japfa shareholders are receiving one AustAsia share for every five Japfa shares held as a distribution-in-specie. Japfa said the listing allows its shareholders to participate in the growth of the animal proteins and dairy businesses.

Investors have until 5 pm on Jan 19 to decide if they would like to accept the distribution-in-specie in the form of AustAsia shares, or take cash from a sale of their entitlements.

In terms of business segmentation, Japfa’s China unit is mainly focused on liquid proteins and dairy. The rest of Japfa is largely centred on meat proteins such as swine and chicken. The business natures, he said, are “quite different”, although the core competencies remain the same.

“AustAsia has reached a state where they are of a substantial size. They can hold their own,” said Tan. “It’s far better for them to be independent (after they have grown fully).”

Operations have not been easy in China, Collins said, with Covid-19 restrictions having had “quite an impact” on the country.

These are being rolled back now, though. “The developments by the government, and their announcements to open up the country, take away a significant part of the uncertainty,” he said.

“As they open things up, that’s really what brings opportunity for AustAsia; and we see consumer consumption resuming a more natural evolution.”

On the inflation front, Collins expects challenges to continue in the near term for feed costs. He notes, however, that costs have been high for some time, and that the prices of the key commodities for AustAsia, such as soybean and corn, are expected to fall.

AustAsia enjoys some pricing advantages – its average selling price for milk is about 11.5 per cent above the industry average. Collins said the company will continue adding to and diversifying its customer base, and will also focus on cost and efficiency to maintain its margins.