Compiled by Leila Lai
HI-P INTERNATIONAL I SELL (DOWNGRADED)
AUG 5 CLOSE: $1.22
TARGET PRICE: $1.15
Maybank Kim Eng Research, Aug 4
Q2 2019 profit after tax and minority interests rose 17 per cent year-on-year, despite a 5 per cent drop in revenue, surpassing our expectation of flat year-on-year.
This was largely due to a favourable shift in product mix. Amid an increasingly cautious outlook, Hi-P now guides for FY19 earnings to be "lower" year-on-year from "similar" previously. We cut FY19-21E earnings per share by 4-7 per cent to reflect management's revised guidance.
Despite now guiding to lower earnings year-on-year, guidance for revenue was maintained at flat year-on-year.
Management expects the profitability drag to come from pricing pressure and reduced scale of efficiencies. It is closely evaluating several candidates for mergers and acquisitions. We see a possibility that a deal could be announced in several months, which presents both upside and downside risks.
We believe Hi-P could outperform our earnings expectations if it is able to win wallet share. At 12 times FY19E price/earnings, Hi-P appears overvalued against 10 times for global peers and near 1 standard deviation above its three-year mean of 13 times. Accordingly, we downgrade to "sell".
JAPFA I HOLD (MAINTAINED)
AUG 5 CLOSE: $0.50
TARGET PRICE: $0.53
DBS Group Research, Aug 5
We maintain our "hold" call with a lower target price of 53 cents (from 61 cents) after we rolled forward our valuation to FY20F and adjusted our enterprise value/earnings before interest, tax, depreciation and amortisation (Ebitda) multiple.
While share price has corrected by about 40 per cent from its peak earlier this year, in the near term, we see continued challenges in its Indonesia operations in H2 2019 and uncertainties arising from the outbreak of African swine fever virus in Vietnam.
Our earnings are at the lower end of consensus figures. While we believe in the long-term structural growth in animal protein consumption, we believe that Japfa's Indonesian operations JPFA (currently its largest profit contributor) is undergoing near-term cyclical pressures. In the long term, the group's diversification across different geographies would help mitigate the fluctuations.
A benign raw material environment and higher average selling price for DOC and broiler could lead to a better profit outlook for the group. The upside catalyst would come from better broiler prices for its Indonesian operations and lower-than-expected corn prices.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.