The offer comes as Japfa&rsquo s shares trade below its net asset value of S$0.52

 

AGRI-FOOD company Japfa : UD2 +1.49% on Monday (Aug 19) proposed undertaking an off-market purchase of its ordinary shares at S$0.355 apiece under an equal access scheme.

 

The company will buy back up to around 183.3 million shares, or about 9 per cent of its shares in issue as at Monday.

 

The offer price represents a 6 per cent premium over the last dealt price of the share on Monday, the latest date on which the shares were traded before the offer was announced.

 

It also represents premiums of 8.6 per cent, 17.5 per cent, 22.4 per cent and 27.7 per cent over the three-month, six-month, nine-month, and 12-month volume-weighted average prices, respectively, up to the last trading date.

 

Assuming Japfa buys back the maximum number of shares available, the company will commit S$65.1 million. This amount will be funded through internal resources or external borrowings, said the company.

 

The proposed offer is not expected to have any adverse material effect on the company&rsquo s working capital requirements and gearing levels.

 

Each shareholder will be entitled to sell to the company up to 9 per cent of their total number of shares held in their own name, said the group. Additionally, shareholders also have the option to tender for shares in excess of this entitlement if other shareholders do not fully participate in the offer, it added.

 

All the shares bought back will be first held as treasury shares, and will subsequently be used and/or cancelled.

 

The offer came as Japfa&rsquo s shares were trading below its net asset value of S$0.52, said the company.

 

&ldquo The equal access offer demonstrates the company&rsquo s confidence in its long-term growth potential,&rdquo it said.

 

Japfa also noted that the offer gives shareholders an opportunity to realise a portion of their investments in the shares at a premium over recent market prices of the shares without incurring transaction costs.

DBS Group Research analysts are keeping buy on Japfa UD2 0.00% with a target price of 45 cents following the company&rsquo s 1HFY2024 ended June results release.

 

For its 1HFY2024, Japfa&rsquo s revenue came in at US$2.3 billion ($3.08 billion), up 6% y-o-y. Earnings were US$52 million, reversing from the US$54 million loss last year &mdash this equates to about 80% of DBS&rsquo s FY2024 projections.

 

Japfa&rsquo s revenue for its Indonesia subsidiary grew 7% y-o-y, while also registering 3% growth in its animal protein - others (APO) business, largely from Vietnam.

 

For its 2QFY2024, earnings more than tripled to US$39 million from US$12 million in the preceding quarter. This is due to positive industry dynamics in both Indonesia and Vietnam, as well as lower material costs. 

 

Indonesia and Vietnam saw higher prices of poultry and swine respectively, which was attributed largely to supply-led factors. DBS notes that in Indonesia, the positive supply dynamic seems to be supported by voluntary culling by industry players and individual farmers, who were wary of over breeding broilers post-Lebaran given experiences of losses in the past. 

 

&ldquo Management shared that smaller breeders tend to be opportunistic and could return to the market, adding to higher unpredictability and volatility in broiler prices. With a short 30 to 40 days breeding cycle, the farmers who missed out may start entering the market,&rdquo the analysts point out.

In Vietnam, Japfa&rsquo s focus on biosecurity ensured its swine supply remained stable amidst ongoing Asian Swine Flu (ASF), which had a disproportionate adverse impact on the supply of its competitors, especially the smaller farmers. With a much longer six months fattening period for swine, the company highlighted that it would be more challenging for individual and small-scale farmers to take advantage of the current higher swine prices, the analysts say.

 

That said, DBS reiterates that Japfa&rsquo s 1HFY2024 revenue and earnings were ahead of their expectations. The company&rsquo s twin engines of growth &mdash Indonesia and Vietnam &mdash continue to rev up, delivering a strong 2QFY2024.

 

Given uncertainties ahead in Indonesia due to the unpredictable supply dynamics and recent broiler price drop to IDR16,000 to IDR17,000 per kg, DBS has maintained its current earnings outlook. However, the analysts do see potential upside should broiler prices reverse its current trend during the 2HFY2024 period, along with higher feed margins on the back of retreating raw material prices.

 

&ldquo We are more optimistic on Vietnam given the longer time frame for swine breeding. Accordingly, we see higher odds of outperformance coming from Vietnam which should offset potentially slower h-o-h in Indonesia, if any, after a strong 1HFY2024. As such, we are keeping our overall earnings estimates unchanged,&rdquo the analysts note.