SINGAPORE (March 3): CIMB Research is keeping its " add" position on Japfa but lowering its target price to $1.41 from $1.53 previously due to poorer than expected 4Q16 core net profit.

(See also:  Japfa full-year earnings up 84% to US$118.8 mil)

In a Thursday report, analyst Jonathan Seow says even though Japfa missed CIMB' s 4Q net profit estimates, decent FY16 performance, operational improvements and a favourable selling price environment kept the research house from downgrading its call.

In 4Q16, core earnings came in below expectations, with the miss mostly coming from animal protein and dairy which recorded lower margins. However, FY16 net profit still came in at a record high with core earnings up 57% from the same period the year before.

Margins for the group' s animal protein business segment fell as swine prices in Vietnam took a hit in 4Q on lower demand from China as the country tightened imports.

Over at India, demand was also weaker due to the demonetisation of the rupee in November last year.

In the dairy segment, the group continued to make good operational progress but profitability was still hindered by weak raw milk selling prices. This dragged 4Q16 operating profits down 8% y-o-y even as revenues grew 18%, driven by a 34% rise in sales volume.

" Despite the earnings miss, we are still positive on the stock given the operational improvements and retain the view that a more favourable selling price environment will immediately translate to improved profitability," says Seow.

Shares of Japfa are trading 2 cents lower at 88 cents.