Excerpts from analysts' report
DBS Vickers analysts: Paul Yong, CFA & the Singapore Research Team
| ♦ May-16: Top Conviction Picks |
 Andy Luong, CEO of UMS Holdings. NextInsight file photo.With volatility likely to increase, we prefer to go with defensive and resilient picks. Defensive yield picks: UMS Holdings and China Merchants Pacific offer prospective yields of >8%. Meanwhile, Japfa has demonstrated resilience following its recent strong 1Q results, and mm2 Asia is poised to post good earnings growth ahead on growing local productions and recurring income from recently acquired businesses (including cinemas). We also reiterate our FULLY VALUED call on Nam Cheong, which could see significant downside risk. |
Japfa Ltd [JAP SP, TP S$1.10]
| Japfa | |
| Share price: 68 cts | Target price: $1.10 |
Japfa’s 1Q results were ahead of expectations, contributing to 23% of our full-year target vs its two-year average of 12%. Strong performance was largely driven by growth outside Indonesia as the Animal Protein (outside Indonesia) and Dairy segments expanded 8% and 10% y-o-y respectively.
Looking forward, we believe the growth drivers are still intact and forecast a 23% EBITDA CAGR over the next three years – mainly driven by higher dairy volumes as Japfa intends to double its dairy farm production capacity in China by constructing another five farm hubs in Inner Mongolia.
While we expect Japfa’s combined regional DOC output to expand less aggressively by 6% CAGR over the same period, given the curbs on DOC capacity, we think that demand ahead should continue to be driven by population growth and rising per capita income.
While our post-1Q forecasts remain unchanged, we roll forward our earnings base to FY17F, thus raising our SOP-based TP to S$1.10 from S$0.90 previously, and continue to believe that the counter lags its subsidiary’s market value and our assigned value.
Full report here.
