Analysts have downgraded Japfa following weaker than expected earnings due to surging costs. Coupled with prospects of a prolonged industry downturn, investors ought to brace for lower chances of a quick recovery.

 

For its 4 QFY2022, Japfa reported a core net loss of US$31.1 million. While its China dairy business reported a profit, its chicken farming business in Indonesia made a loss and its pig farming business in Vietnam suffered too.

 

&ldquo The deterioration in profitability was a confluence of factors, including weak average selling prices for poultry and swine that have not kept up with the rise in raw materials across Japfa&rsquo s protein business, as well as the spread of African Swine Fever affecting its swine fattening operations in Vietnam in FY2022,&rdquo write CGS-CIMB analyst Tay Wee Kuang in his March 3 report.

 

According to Japfa, the swine flu caused a direct hit of US$20 million.

 

Meanwhile, the chicken farming part of the business faces an over-supply situation, which Japfa attributes to inflationary pressures which curb consumer demand in Indonesia.

 

The sluggish prices will only recover in the second half of this year, says Tay, who has lowered his call from &ldquo add&rdquo to &ldquo reduce&rdquo and cut his target price from 42 cents to 24 cents.

 

UOB Kay Hian, in its March 7 report, assumes that the pig farming business in Vietnam will continue to suffer from weak selling prices and margins, as feed prices remain high.

 

&ldquo We believe there will be limited near-term catalysts until the ASPs of Indonesia poultry and Vietnam swine recover more significantly,&rdquo says UOB Kay Hian, which is keeping its &ldquo hold&rdquo call but with a lowered target price of 23 cents.