Japfa Ltd (SGX: UD2)

PRINSEP
CAPITAL
Japfa Ltd (SGX:UD2, JAP:SP)
Lean, Mean, Protein Machine
Initiate BUY
Share Price:
Target Price:
Upside:
SGD$0.65
SGD$0.93
43%
Statistics
GICS Industry:
Bloomberg Ticker:
52 week range:
Free float:
3m avg turnover
Shares (m):
Market Cap:
Consumer Staples
JAP:SP
SGD$0.445 - 0.84
18.3%
SGD$2.2m
1,865
SGD$1,212m
Japfa Ltd is an agri-food company which mainly produces and sells dairy
products, protein staples, and packaged food products. It has operations in
Indonesia, Vietnam, China, India, Myanmar and exports internationally.
Japfa Ltd prides itself on its integrated network of farming, processing, and
distribution facilities.
INVESTMENT SUMMARY
We issue a buy recommendation on Japfa Ltd with a target price of
SGD$0.93, presenting 43% upside potential. Our valuation methodology is
based on a combination of a DCF and Sum-of-the-Parts calculation. Our
recommendation is underpinned by the following three investment theses:
(1) strong underlying growth in markets that Japfa operates in, (2) an
unjustified recent selldown on ASF concerns, and (3) the market
undervaluing Japfa’s 52.43% stake in PT Japfa TBK as well as according
zero value to its profitable and growing APO and dairy segments.
(1) Long term secular tailwinds intact. Japfa is poised to ride on the long-
term tailwinds of the emerging market economies that it operates in. Due
to rising economic growth and growing income levels, meat consumption is
set to increase and drive demand for Japfa’s animal protein products. The
underlying growth in meat consumption also spells good news for the
animal feed segment as animal protein production is ramped up.
Furthermore, the group stands to benefit from the full share of profits from
its booming Dairy segment.
(2) ASF outbreak not as bad as it sounds. Japfa’s stock price fell by 23%
since Feb 22 over fears that its Vietnamese operations would be negatively
affected by recent African Swine Fever (ASF) outbreak. However, none of
Japfa’s farms have been affected by the disease thus far. We believe that
the company is well-equipped to deal with a potential crisis and could
possibly increase market share as smaller players die out. The Vietnamese
government has also made it public that they would be fiercely combatting
the epidemic, possibly cutting the ASF issue at its nascency. Management’s
aggressive share buybacks and recent hike in dividends lends support to our
view.
(3) Significant mispricing presents arbitrage opportunity. Japfa owns a
52.43% stake in IDX-listed PT Japfa TBK. Alone, the subsidiary is worth
US$998 million. This exceeds Japfa’s market capitalization of US$897
million. Furthermore, the market is according zero value to its profitable
and growing APO and dairy segments which generated US$82.1 million in
core PATMI w/o forex in FY18. We believe this steep mispricing offers a
compelling arbitrage opportunity. We expect this gap to narrow as the APO
and consumer segment profitability improves.
Key risks. Japfa’s has a high net gearing level which is a cause for concern
given the rising interest rate environment. Due to the multiple operating
currencies (IDR,VND, CNY, and INR) and USD-denominated debt, Japfa also
faces forex risks. Industry specific risks include demand-supply imbalances
in animal proteins, price of animal feed inputs, disease outbreaks, and
heightened competition in ambient food sector.
25th Mar 2019
Valuation as at 25th March 2019
Discounted Cash Flow Valuation
Risk Free Rate 2.16%
Equity Risk Premium 5.96%
Beta 1.30
Weighted Average Cost of Capital 9%
Target Price SGD$0.93
Total Return 43%
0.3
0.4
0.5
0.6
0.7
0.8
Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19
Japfa Ltd STI (Rebased)
Industry Jargons
DOC Day-old Chicks
Broiler Chickens bred for consumption
Layer Chickens bred for producing eggs
Parent Stock
(PS)
Produced from grandparent stock,
lays eggs that become broiler DOCs
Grandparent
Stock (GPS)
2nd level of breeding from Pure Line
1-Yr Share Performance vs STI (Rebased)
Key Financials
2017 2018 2019E 2020E 2021E
Revenue (US$m) 3,190 3,533 3,632 3,927 4,166
Revenue Growth 5.18% 10.76% 2.79% 8.12% 6.10%
Gross Margin 18.00% 21.80% 19.60% 19.52% 19.52%
Operating Margin 5.91% 9.67% 7.91% 8.95% 8.72%
Net Margin 1.76% 5.04% 2.97% 3.88% 3.77%
ROA 2.05% 6.17% 3.48% 4.62% 4.51%
ROE 5.50% 15.77% 8.72% 10.96% 10.15%
Summary Page
Key Shareholders
Santosa Family 56.74%
Kolonas Family 15.19%
Santosa Handojo 4.40%
Prepared by: Bryan Tan Jun Han, Kenny Chia
Lim Rui Feng Rachel, Yee Jin Koi

PRINSEP
CAPITAL
0
10
20
30
40
50
China Indonesia Malaysia Thailand Vietnam
Beef and Veal Pork Poultry
PT Japfa
TBK, 66%
Animal
Protein
Other, 17%
Dairy, 11%
Consumer
Goods, 6%
Business Description
Japfa is a leading pan-Asian industrial agri-food company headquartered in
Singapore. Founded in 1975, it was privately-owned till its IPO on the
Singapore Exchange in 2014. It is vertically integrated across the entire
farming and food production value chain, from animal feed production and
breeding to commercial farming and food processing. The company
operates in high-growth emerging Asian markets, with production and
distribution facilities in Indonesia, China, India, Vietnam and Myanmar and
over 34,000 employees.
Geographic and Business Segments
Japfa serves 3 end-markets: animal feed, animal protein (poultry, swine,
beef, aquaculture, dairy) and consumer foods (frozen, ambient). Of its 4
reportable business segments, most revenue originates from Animal Protein
Indonesia (66%) which manages feed, poultry, beef and aquaculture
operations under subsidiary PT Japfa Comfeed TBK. Succeeding it is Animal
Protein Other (17%) comprising feed, poultry and swine operations in
Vietnam, Myanmar and India; Dairy (11%) which produces raw milk for
downstream consumers and in-house Greenfields brand in China and
Indonesia respectively; and Consumer Goods (6%) in Indonesia and Vietnam
which sells protein-based ready-to-eat frozen and chilled products under 5
brands such as So Good and So Yumm. Indonesia (74%) is Japfa’s largest
geographical market, followed by Vietnam (9.5%) and China (9.5%).
Core Products: Feed and Poultry
Animal feed is recognized as a core strength and stable profitability pillar
of Japfa, with feed conversion ratios of its Comfeed and Benefeed brands
among the best in its core market of Indonesia. Poultry (including feed) is
the largest of its animal proteins at 59.5% of total revenue in FY17. The
company has over 9,000 contract farms and owns multiple facilities across
all parts of the value chain. Japfa’s emphasis on quality and biosecurity is
a strong success factor. It owns an animal vaccine company and has JVs
with genetic companies Aviagen and Hypor to produce genetically superior
breeding stock. Resultingly, it enjoys high production yields across its
products with milk yields of 39kg/day and DOC production over 20%.
Market Strategy
Japfa’s key goal is to strengthen its 3 key business pillars of poultry, swine
and dairy to provide quality yet affordable products for the masses. Its
industrialization approach to farming and food production allows successful
replication and standardization of its industrialized and scalable businesses
across the region, enabling efficient expansion into key growth markets
such as China and India. Japfa aims to mitigate market challenges by
enhancing operational efficiency and profitability to counter price
fluctuations, for example by extending its leadership position in milk yields
to mitigate lower ASP of raw milk in China. Its diversification strategy
across 5 animal proteins and 5 countries cushions it from cyclical
fluctuations due to the harvest seasonality, macroeconomic factors
affecting purchasing power and government policies, ensuring long-term
resilience. Further, Japfa places emphasis on nurturing growth-oriented
relationships with stakeholder groups through close relationships with
poultry farmers and customers, community CSR like ‘Japfa 4 Kids’ and
ethical and fair business practices. Japfa also reaffirms its aim to make
strategic investments in selected markets to capture the rise in consumer
demand. In 2018, it acquired the remaining interest in the consistently-
profitable dairy business ‘AustAsia’ and opened new markets in Sumatra,
Central Java and East Java areas to expand its Indonesian stronghold.
Corporate Governance
Japfa is composed of 6 holding companies in Singapore and main subsidiary
PT Japfa Comfeed TBK in Indonesia. Its Board of Directors have 7 members
and 3 committees: Audit (AC), Nominating (NC) and Remuneration (RC).
There are 3 independent members (42.9%) and 1 female member (14.3%),
which may raise some questions about the independence of current BOD
members. To mitigate this, NC is comprised entirely of Independent
members, while AC and RC have an independent majority. Of the 8
members of the group’s key management team, the 6 members overseeing
the group’s product lines have been with the company for decades. We
believe such a tenured and experienced team in livestock and agri-business
can set a strong strategic direction for Japfa’s future growth. Japfa also
has a whistleblowing avenue “Japfalert” for any employee, supplier or
business associate and whistleblowers are protected from sanctions.
In terms of shareholder structure, there are 1.86 billion outstanding shares
of only one share class, with majority owned by company insiders.
Shareholders have voting rights and Directors are re-elected annually.
Strategy
Sales by Operating Segments
Sales by Geographic Segments
Asia Animal Protein Consumption (kg per capita)
Source: Japfa Annual Report 2018
Source: Bloomberg
Source: Company Data
Source: Food and Beverage Asia-Pacific FTSE Report Feb 2019
Others, 1.3%
Indonesia,
74.2%
Vietnam,
9.5%
China, 9.5%
India, 2.8%
Source: Japfa Annual Report 2017
Company Background
Industrialization
approach to farming and
food production
Operational efficiency
through productivity and
production yield gains
Diversification across 5
proteins, 5 countries
Growth-oriented
relationships with
stakeholder groups
3 key pillars: poultry, swine, dairy
Strategic investments in selected markets
25th Mar 2019

PRINSEP
CAPITAL
Industry Overview
Japfa operates in 2 agri-business subsectors, animal protein and consumer
goods, in emerging Asia. Growth in these sectors is forecasted to be strong:
of the 45% growth in the global animal protein market from 2015-2025, 60%
originates from emerging Asia. Meat and poultry sales in Asia grew 5.5% in
2018 to USD$254.6bn while dairy sales grew 6.1% in 2018 to USD$118.6bn,
with forecasted CAGRs of 11.2% and 10.8% respectively from 2018-2022 .
Asia-Pacific’s processed meat market also has a forecasted 7.2% CAGR from
2018-2023. Higher per-capita incomes, growing regional Muslim population
and preference for convenience present strong underlying drivers.
Moreover, headwinds such as disease outbreaks and macroeconomic
factors are likely to have minimal impact on growth due to their short-term
nature.
Industry Drivers and Trends
Rising per-capita income. Rapid economic growth across Asia has
increased per-capita incomes, with the middle-class to grow by 88% from
2017-21. This has skewed diet preferences towards pricier meat products,
raising per-capita consumption of animal protein. Compounded by high
population growth, the market for animal protein is likely to expand.
Growing Muslim Population. The USD$632bn global Halal food market is
expected to grow at a 6.1% CAGR from 2018-24 with much of it
concentrated in Southeast Asia due to its large Muslim population. Hence,
demand for poultry is expected to rise. Japfa’s Halal certification ensures
that it is well-positioned to capture this growth.
Preference for Convenience. Emancipation of women has led to more
dual-income households which seek convenient food solutions, while the
increased adoption of formal retail in emerging markets has grown demand
for consumer packaged foods. Coupled with the shift towards high-protein
diets, demand for processed meat ready-to-eat products is likely to rise.
Competitive Positioning
Japfa is a market leader in multiple protein segments in Asia and the 2nd
largest poultry producer in Indonesia. As it derives most of its revenue from
poultry, we have focused on the USD$254.6b Asian meat and poultry
market, specifically that of emerging Asia. The industry is characterized by
moderate barriers to entry; high capex is needed for new entrants to
compete on a large scale with large industry players which are strongly
vertically integrated, though opportunities in niche and high-value areas do
exist. Competitive rivalry is also high due to the presence of many players
and low ability to differentiate products. Additionally, buyer power is high
as the many meat producers allow the biggest buyers, strong businesses like
supermarkets, to choose freely between them based on price and quality.
Supplier power is low due to the large number of suppliers and the fact that
large industry players often own or have established partnerships with their
suppliers. Finally, meat alternatives like plant-based protein pose little
threat considering current diet trends towards animal protein.
Core poultry business ahead of its competitors. Japfa Comfeed, its
Indonesian poultry subsidiary, enjoys higher margins and returns than its
peers; for instance, its 14.4% EBITDA margin is higher than its closest
competitor, PT Chareon’s 9.0%. Japfa commands the second-highest market
share in poultry feed (19%) and DOC (24%), while its main competitors are
PT Charoen Pokphand Indonesia TBK (31% and 41%) and PT Malindo Feedmill
TBK (8% and 7%). Together, their combined market share is 58% and 72%
respectively, resulting in an oligopolistic market and high market power. As
rising costs make further industry consolidation likely, this provides room for
Japfa to expand; in fact, it gained market share in 1H18 with 18% YoY
revenue growth compared to the industry’s 5%. Moreover, Japfa is the most
diversified among its competitors, reducing the impact of cyclical
fluctuations in the poultry industry. Its other businesses also fare well; its
swine business ranks highly in cost-efficiency in the industry while in China,
it has the highest milk yields in the industry.
Key competencies aid growth. Japfa has competencies in scale,
standardization, technology and animal health. Its ability to manage,
replicate and standardize mega-scale farming operations across 5 countries
lets it reap economies of scale and remain a low-cost producer, mitigating
macroeconomic risks. Its strong technological slant and prioritization of
biosecurity cements its product quality and brand value as a top consumer
choice, lowering buyer power.
Strong standing with suppliers and customers. Japfa has close broiler farm
partnerships with small farmers with limited capital in Indonesia, protecting
these farmers from macroeconomic risks and ensuring a sustainable supply
source for its businesses. Additionally, Japfa’s partnership with
conglomerate Cargill to produce premium chicken products reinforces its
branding, ensuring it remains a top choice of supermarkets and grocers.
Porter’s 5 Forces
Meat and Poultry Sales in Asia, 2015-2022
Dairy Sales in Asia, %
SWOT
Industry Overview
Bargaining
Power of
Customers
Intensity of
Competitive
Rivalry
Bargaining
Power of
Suppliers
Threat of
Substitutes
Barriers to
Entry
Strengths Weaknesses
Opportunities Threats
0
2
4
6
8
10
12
14
16
0
100
200
300
400
500
600
700
800
900
2015 2016 2017 2018 2019F 2020F 2021F 2022F
YoYgrowth(%)
Sales(USDbn)
Sales % YoY growth
Source: Fitch Solutions Industry Forecast
0
2
4
6
8
10
12
14
0
100
200
300
400
500
600
2015 2016 2017 2018 2019F 2020F 2021F 2022F
YoYgrowth(%)
Sales(USDbn)
Sales % YoY growth
Source: Fitch Solutions Industry Forecast
Core competencies in scale,
standardization, technology
and animal health
Concentration risk in Indonesia
Macroeconomic uncertaintyDiet shifts towards meat
High production yields across
its products
High net gearing
Diversification across 5 countries
and 5 protein staples
Changes in government regulationsGrowing Halal food market and
regional Muslim population
Higher demand for protein-rich,
ready-to-eat foods
Demand-supply imbalances
High competition in consumer foods
25th Mar 2019

PRINSEP
CAPITAL
9.09
0
20
40
60
80
100
120
UkraineBelarus
New
ZealandAustraliaCanada
United
StatesEU-28Russia
India
Brazil
ArgentinaMexico
Japan
South
KoreaTaiw
an
China
2017 World Per Capita Milk Consumption (Kg)
Japfa Markets YoY GDP Growth (2019-2023)
Correlation: GDP & Meat Consumption (2018)
Long-Term Secular Tailwinds Intact
Japfa’s pan-Asian operations enable it to have a total addressable market
in excess of 3 billion people, which is over 40% of the world’s population.
Furthermore, Japfa’s markets consist of emerging markets in Asia, where
economic growth is set to outpace the world for the coming years. With
rising incomes and populations to drive growth in its geographic markets,
Japfa is well positioned to ride on the long-term secular tailwinds.
As income levels rise, people in developing nations would eventually shift
away from a grain-based diet to meat, which is of a higher nutritional
value. To support this claim, an analysis of countries’ GDP growth and meat
consumption was conducted and the results displayed a positive correlation
with R2 of +0.63. Hence, animal protein consumption is expected to rise
together with income levels in these developing economies. This is a boon
for Japfa as its markets currently have a low GDP per capita and this
presents robust upside potential for animal protein sales.
Sustaining the Feeder of Emerging Asia: PT Japfa TBK
Japfa’s Indonesian operation is helmed by a majority-owned subsidiary, PT
Japfa TBK. In Indonesia, consumption of animal proteins have been
increasing at a CAGR of 10.7% from 2013 – 2017. With Indonesia’s GDP per
capita and meat consumption per capita substantially below world
averages, there is considerable upside potential in this market. Since over
70% of FY18 revenue comes from the Indonesian segment alone, PT Japfa
TBK’s animal protein operations stand to benefit from this growing trend of
affluence.
PT Japfa TBK’s animal feed business consisting of poultry and aquaculture
feed has long been a pillar of profitability for Japfa. Examining PT Japfa
TBK’s operations, we observe that the animal feed segment yields the most
stable operating margins with an 4-Yr average operating margin of over
11%. Feed margins’ relative stability to that of other segments can be
attributed to Japfa’s ability to incrementally pass any price fluctuations of
non-perishable inputs like soy beans and corn onto downstream members of
the value chain.
In FY18, PT Japfa TBK enjoyed an increase in sales volume for poultry feed
even with an increasing DOC shortage in Indonesia. This growth is expected
to persist in the long-term as the secular trend of rising animal protein
production continues to drive feed demand.
Pigs and Troughs: Vietnam to lead APO Segment Growth
Japfa’s Vietnamese businesses make up 93.4% of FY18 APO segment
operating profit. Emerging from a lackluster FY17 due to a Chinese import
ban on pork, the Vietnamese operations swung back to profitability on the
backdrop of rising sales for poultry feed and a strong recovery of ASPs for
swine fattening. We expect swine ASPs to remain stable moving forward in
anticipation of a swine stock shortage given the recent ASF outbreak.
Currently, pork is the most popular meat in Vietnam, making up 75% of all
meats consumed. Additionally, poultry consumption has been rising at
higher rates than pork. In the long-term, Vietnam’s pork and poultry
consumption is forecasted to continue to outperform OECD averages, with a
10-Yr CAGR of 2.14% and 2.79% respectively.
Japfa is well-poised to capture value from the rising consumption of meat
with its well-established swine and poultry farming operations in Vietnam.
Its animal feed operations would also be boosted by increased production
of swine and poultry.
Milking the Right Opportunities: Dairy
The dairy segment is outlined by the group to be a salient future growth
driver. The group’s upstream operations include supplying of premium raw
milk while downstream operations are fronted by the sale of premium
pasteurised fresh milk brand Greenfields.
The segment’s Chinese operations propels its revenue and profitability. For
the past 4 fiscal years, revenue has been rising at a 12.6% CAGR while
operating profit margins have been hovering at over 21%. This can be
associated to rising demand for dairy products and stellar milk yields of
over 39kg/head/day. Japfa’s dairy segment is set to ride on the tailwinds
of growing Chinese dairy consumption, which lags behind countries in the
West and Asia.
In FY18, the group completed the acquisition of the remaining stake of
their dairy business in China and Indonesia held by Black River Funds. This
would enable Japfa to increase their exposure to a rapidly growing
profitable business and to strengthen its position in downstream markets.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
India Indonesia Vietnam Myanmar China World
2019E 2020E 2021E 2022E 2023E
Source: IMF
Source: OECD, IMF
0
20
40
60
80
100
120
0 10000 20000 30000 40000 50000 60000 70000
R2
= +0.63
MeatConsumption/Capita(kg)
GDP/Capita (USD$)
USA
Australia
New ZealandEU
Japan
Vietnam Malaysia
China
World
Philippines
Thailand
Indonesia
India
Vietnam Meat Consumption Growth (2017-2027)
China Dairy Consumption (,000s Tons)
Source: OECD
39,000
40,000
41,000
42,000
43,000
44,000
45,000
46,000
47,000
48,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Source: OECD
Investment Thesis #1
1.62%
2.14%
2.79%
0.23%
0.03%
0.40%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Beef Pork Poultry
Vietnam OECD
1.27% CAGR
Sample Developed World Average: 62.82Kg
Source: OECD
25th Mar 2019

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11.09%
12.48%
11.90%
9.50%
10.98%
0%
2%
4%
6%
8%
10%
12%
14%
2014 2015 2016 2017 2018
ASF Outbreak Not As Bad As It Sounds
Since Vietnam reported its first case of African Swine Fever (ASF) on 19th
Feb 2019, Japfa’s stock price has tumbled by 23% from a high of $0.84 to
$0.65. Upon conducting analysis of the effect of ASF on Japfa’s operations,
we opine that the scale of the selldown is unjustified due to the fact that
none of Japfa’s swine stock had been infected by the ASF and that Vietnam
only accounts for 9-13% of the group’s total revenues.
ASF is a fatal animal disease affecting pigs and wild boars, with mortality
rates close to 100%. ASF recently surfaced in Asia on August 2018, with
China reporting its first outbreaks of ASF in Liaoning Province. The disease
subsequently spread throughout the country and this poses inherent
contagion risks for countries surrounding China. To contain these risks,
China has culled over 900,000 swine stocks.
With the virus entering Vietnam, swine stocks in Japfa-operated farms risk
contracting the virus. However, it must be noted that since Feb 2019, all
79 cases of ASF involving over 6,000 pigs in Vietnam occurred in rural
households. In such small-scale rearing operations, biosecurity levels are
low and few precautions are put in place to safeguard against a disease
outbreak. In the ASF cases reported, all affected swine stocks were culled.
Japfa is well-equipped to deal with a pandemic
Since there is no known effective vaccine for ASF, prevention is imperative.
Japfa takes an industrialised approach to farming and places utmost
emphasis on stringent operating procedures that would ensure high levels
of biosecurity. These include isolation facilities to prevent a full stock-
wipeout and rigorous disinfection protocols for farm personnel. Its
vertically integrated operations also allow for traceability of inputs such as
animal feed to further reduce transmission risks. These measures put Japfa
in good standing to weather an ASF epidemic. Thus far, none of Japfa’s
farms have been affected by the disease.
Seizing opportunities in the chaos
Industrialised farms currently only make up 47% of Vietnam’s pork
production market. However, as operations of smaller and less advanced
backyard farms take a hit from this epidemic, industrialised farms are
poised to capitalise on this opportune moment to accumulate market
share. This scenario has played out before in Russia during the 2007 ASF
outbreak, where large industrialised swine farms were better able to
weather out the storm compared to backyard farms and doubled pork
production over a decade. This allowed industrialised farms like Miratorg in
Russia to increase production while smaller farms died away. With its
consistent investments to improve biosecurity standards and with disease-
control protocols put in place, Japfa is well-positioned to capture market
share in Vietnam for its swine business.
Consumer sentiment to improve after positive government measures
The Vietnamese government is taking the ASF issue seriously and PM
Nguyen Xuan Phuc has vowed to take drastic measures to combat the
epidemic. PM Phuc ordered localities to ban the transport, trade,
slaughtering and consumption of illegally imported pig products and those
without clear origins. Japfa has indicated that it would be willing to fully
adhere to new government policies to further contain the disease.
Furthermore, Vietnam’s Ministry of Agriculture and Rural Development is
urging the public not to boycott pork products as ASF only affects pigs and
cannot be transmitted to humans. This might clarify doubts about
consumption of pork and improve consumer sentiment. As wary and more
informed consumers switch to producers with high safety standards and
lucid traceability, Japfa is in good standing to be a beneficiary of the
demand shift to more reputable pork producers.
Recent management actions affirm our view that ASF concerns are
overblown
Japfa has been engaging in share-buyback activities since 4th March 2019 at
a price range of SGD$0.645 - SGD$0.71. The total buyback value thus far is
SGD$1.619m, which already exceeds last year’s total buyback value of
SGD$1.602m. Furthermore, as a sign of confidence in the near term
outlook, management has also declared a special dividend of 1.0 Singapore
cent on top of the final dividend of 1.0 Singapore cent for FY18 (vs 0.5
Singapore cent for FY17). As such, total dividends declared is at an all time
high since Japfa’s IPO in Aug 2014. These actions by management affirm
our view that the ASF concerns are overblown.
Vietnam Government ASF Reaction Plan
1 Farm owners to send blood samples of suspected
swine affected by ASF to the World Organisation
for Animal Health for analysis
2 Slaughter and dispose of infected pigs within 24h
of receipt of ASF positive results
3 In areas of outbreak, slaughter and dispose of pigs
displaying clinical symptoms like fever within 48h
of outbreak without having to wait for results
4 For affected industrialised farms, apart from
disposing of infected pigs, biosecurity measures
are to be applied to remaining stocks and samples
must be taken periodically for monitoring of
disease.
5 Terminate entire farm if risk of contagion is high
6 Treatment of infected and potentially infected
pigs not permitted
7 Farm sanitisation must be carried out once a day
for first week of outbreak and 3 times a week for
the next 2-3 weeks
Russia’s Pork Production (million tons)
1.6
3.2
1
1.5
2
2.5
3
3.5
2007 2009 2011 2013 2015 2017
Source: Bloomberg
Source: Ministry of Agriculture and Rural Development, Vietnam
Vietnam Share of Japfa Revenue (%)
ASF Cases in Northern Vietnam
Source: Company Data
Investment Thesis #2
ASF Outbreak in
Russia
China
Outbreaks
The cases of ASF are
restricted to rural
backyard farms in
Northern Vietnam,
possibly due to the
area’s vicinity to the
Chinese border. Thus
far, none of Japfa’s
farms have been
affected
Vietnamese
Outbreaks
Source: Pig Progress
25th Mar 2019

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CAPITAL
Japfa trading below equity stake in PT Japfa TBK
Japfa’s Group Structure
Share Price History Comparison since Japfa’s IPO
Animal Protein Peer Comparison
Significant Mispricing Presents Arbitrage Opportunity
PT Japfa Comfeed Indonesia TBK (“PT Japfa TBK”), together with its
subsidiaries, engages in animal feed, DOC, commercial farm, consumer
products, aquaculture, cattle, trading, and other businesses in Indonesia,
rest of Asia, Europe, and the United States. The company was founded in
1971 and is headquartered in Jakarta, Indonesia. PT Japfa TBK is listed in
the Indonesia Stock Exchange (IDX) and is a 52.43%-owned subsidiary of
Japfa Ltd.
Japfa’s share price detached from economic reality
Since Japfa’s IPO in Aug 2014, PT Japfa TBK has been a significant
contributor to Japfa’s topline and bottomline. In FY18, PT Japfa TBK
contributed 67% and 51% to Japfa’s revenue and core PATMI w/o forex
respectively. In addition, the IDX-listed PT Japfa TBK and the SGX-listed
Japfa traded closely since the listing of the latter, but begun to diverge
in 3Q17. The gap between the pair further widened during the recent
selldown of Japfa due to the ASF concerns. Since Feb 21, Japfa’s share
price is down 21% while PT Japfa TBK’s share price is only down by 4.3%
during the same period. In our view, markets seem to have become
distracted with the weak APO and consumer segments, and forgotten about
the economic relationship between Japfa and PT Japfa TBK.
Market value of 52.43% stake in PT Japfa TBK exceeds Japfa’s own
market capitalization
At IDR2,200 per share, PT Japfa TBK’s market cap stands at US$1,861
million, which means that the market value of Japfa’s 52.43% stake in IDX-
listed PT Japfa TBK is worth US$976 million. On the other hand, at S$0.65
per share, Japfa’s market cap is only US$897 million. Therefore, the
residual market cap excluding the PT Japfa TBK stake is a negative US$79
million. This means that the market is pricing in an 8% discount to the value
of Japfa’s 52.43% stake in PT Japfa TBK as well as according zero value to
Japfa’s profitable and growing APO and Dairy segment which contributed
US$81.2m in core PATMI w/o forex in FY18. It is worth noting that the APO
and Dairy segment accounted for nearly half (49%) of Japfa’s FY18 core
PATMI w/o forex. Hence, we believe that Japfa is significantly mispriced
and presents an interesting arbitrage opportunity.
PT Japfa TBK trading at a discount against peers despite superior
operational metrics
PT Japfa TBK’s profitability margins and efficiency ratios are the highest
amongst its Indonesian animal protein peer group. However, despite its
superior gross, EBITDA, EBIT, and net income margins, PT Japfa is also
trading at a significant discount compared to its peers from a P/E,
EV/EBITDA, EV/EBIT, and perspective.
As such, we believe that there is room for further upside in the equity
value of Japfa’s 52.43% stake in PT Japfa TBK and that additional re-rating
of its stock price could serve as a stock price catalyst for Japfa itself. We
also expect this valuation mispricing to narrow once worries over the ASF
outbreak and consumer segment losses ameliorates.
A key risk in this thesis is a substantial deterioration in the market value of
PT Japfa TBK due to negative internal and/or external factors. However,
we believe that it is unlikely given PT Japfa TBK’s long operating track
record and positive industry tailwinds.
Japfa Ltd
Austasia
Investment
Holdings
Pte Ltd
PT Japfa
Comfeed
Indonesia
TBK
Others
Jupiter
Foods Pte
Ltd
Dairy Animal Protein Consumer Food
100% 52.43% 100% 100%
Source: Japfa
0.2
0.6
1
1.4
1.8
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Japfa Ltd PT Japfa TBK (Rebased)
Source: Yahoo Finance
Details Value (USDm)
PT Japfa TBK market cap 1,861
Value of 52.43% stake in PT Japfa TBK 976
Japfa market cap 897
Japfa market cap excl. PT Japfa TBK (101)
% discount 8%
FY18 Core PATMI w/o Forex excl. PT
Japfa TBK & consumer food segment
81.2
Source: Japfa, Capital IQ
Investment Thesis #3 25th Mar 2019

PRINSEP
CAPITAL
Robust Revenue and Operating Profit Performance
Japfa’s revenues have been growing at a CAGR of 3.69% for the past five
years. The group saw FY18 revenue increase by 10.76% year-on-year to
US$3,533m. This strong growth is driven mainly by higher feed sales volume
and higher ASPs in Indonesia and a strong recovery of swine prices in
Vietnam. Full ownership of its Dairy segment also allowed Japfa to
recognize 100% of Dairy segment contributions in FY18.
Operating profit increased to US$341.8m, which represented a 81.2% year-
on-year increase. The US$152.5m increase was mainly due to PT Japfa
TBK’s strong growth in EBIT, propelled by strong ASPs for broilers and
DOCs. The APO segment also contributed to rising EBIT levels with a strong
recovery in swine prices allowing the APO segment to turn a profit in FY18,
compared with an operating loss of US$26.9 million in FY17.
Moving forward, we expect revenues to rise further, on the back of strong
tailwinds from rising consumption of animal protein in Japfa’s geographical
markets. Our forward estimates for EBIT accounts for a slight dip in FY19
mainly due to stabilising poultry ASPs in Indonesia, higher expenditure on
biosecurity in Vietnam and rising marketing expenses for the consumer
goods segment. Thereafter, we expect operating margins to stabilise at
around 8% over the next few years.
Gearing Becoming Less of a Concern
Japfa’s gearing spiked in FY18 due to borrowing of US$109m for purchasing
of working capital. Japfa also took on an acquisition loan of US$252.8m for
the acquisition of the remaining interest in its Dairy segment, as well as for
additional interest in PT Japfa TBK. As a result, ending D/E was 1.09x. The
increase in leverage is mitigated by an accompanied rise in interest
coverage ratio to 2.93 from 2.80 in FY17.
The increase in debt in FY18 was mainly due to acquisition activities.
Moving forward, we expect Japfa’s debt levels to taper off as gearing
approaches its historical peak. We also expect the interest coverage ratio
to improve over the years with rising operating profits.
Cash Conversion Cycle Improving
Over the past 4 fiscal years, Japfa had a days inventory outstanding
average of 190 days. Although seemingly a large figure, inventory figures
are mainly dominated by non-perishables like cornmeal and soybeans for
raw materials and animal feed as finished goods. For the case of Japfa,
management controls inventory levels to hedge against the risk of
commodity price fluctuations.
Days sales outstanding was also relatively stable historically with an
average of 37 days. This demonstrates good relations with its customers by
maintaining consistent credit terms. To manage credit risks, management
also ensures that customer concentration risks are minimised: In FY17, the
top 3 customers only made up 9.66% of total receivables.
Over the years, the days payable outstanding has been increasing. The days
payable outstanding figure in FY18 was 134 days. This demonstrates
suppliers’ confidence in Japfa’s credit rating.
Overall, the cash conversion cycle has been falling, providing Japfa with
increased liquidity.
DuPont Analysis
Japfa’s net profit margins increased from 1.76% in FY17 to 5.04% in FY17.
On a strong recovery from FY17, ROE and ROA were also uplifted by rising
earnings. Moving forward, we expect net profit margins to normalise due to
FY18 being an exceptional year for Japfa. As debt levels taper off, equity
multiplier is also expected to modestly decrease. With a relatively stable
total asset turnover, future growth in ROE would be driven by rising net
margins on higher share contribution from the dairy segment.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2017 2018 2019F 2020F 2021F
Thousands
Revenue EBIT EBIT Margins
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
-
0.20
0.40
0.60
0.80
1.00
1.20
2017 2018 2019F 2020F 2021F
D/E EBIT/Interest Expense
Japfa’s Revenue and Operating Profit
Financial Analysis
Source: Company Data, Team Estimates
D/E Ratio and Interest Coverage Ratio
Cash Conversion Cycle
DuPont Analysis
2017 2018 2019F 2020F 2021F
Net Margin (%) 1.76% 5.04% 2.97% 3.88% 3.77%
Total Asset Turnover 1.16 1.22 1.17 1.19 1.20
Equity Multiplier 2.68 2.56 2.51 2.37 2.25
ROA 2.05% 6.17% 3.48% 4.62% 4.51%
ROE 5.50% 15.77% 8.72% 10.96% 10.15%
-200
-150
-100
-50
0
50
100
150
200
250
300
2015 2016 2017 2018
DSI DSO DPO CCC
Days
25th Mar 2019

PRINSEP
CAPITAL
Our take on Japfa Ltd
We issue a BUY recommendation on Japfa Ltd with a target price of
SGD$0.93, representing a 43% upside from the closing price of
SGD$0.65 per share of March 25th, 2019. Our target price was derived
using a Discounted Cash Flow (DCF) model with a target price of SGD$0.93
as our primary valuation method. We have also used an SOTP valuation as a
sense check for our primary valuation. Nevertheless, we obtained a similar
target price of SGD$0.98 representing an upside of 51.4%.
Our base case expects a slight year-on-year dip in revenue growth to 3% in
FY19E for PT Japfa TBK’s Animal Feed segment due to reduced demand for
poultry feed as a result of industry-wide culling of poultry stock to curb
oversupply of poultry and maintain price stability.
We foresee the APO segment to be moderately impacted by ASF fears, with
lower demand for pork leading to a 5% fall in revenue in FY19E from FY18.
We expect margins to contract due to heightened biosecurity measures in
response to ASF. However, we do not expect ASF concerns to persist for
more than a year. Hence, revenue and margins are set to normalise at the
end of FY19E.
The Dairy segment is expected to be the future growth driver for Japfa’s
profitability. We attach a conservative revenue growth rate of 9%. This
places the overall segment revenue growth rate at a steep discount to the
growth of the Japfa Chinese Dairy operations but at a slight premium over
the growth of the Indonesian Dairy business. As the Dairy segment
continues to increase marketing expenses to improve the competitive
positioning of its Greenfields brand, we forecast a slight dip in operating
margins moving forward.
We do not expect a quick turnaround in Japfa’s consumer goods segment.
As such, we attach no revenue growth for the next five years and an
operating margin of negative 10%, which is at a discount to historical
performance.
Estimating the risk-adjusted discount rate
We applied a WACC of 9.00% to discount the projected firm FCF. The cost
of debt was computed using Japfa's FY18 interest expense on FY18’s
average total debt. The computation of cost of equity is based on the
Capital Asset Pricing Model using the following inputs: a) risk-free rate
equals 10-year Singapore Government bond rate of 2.16% b) Singapore's
mature market equity risk premium of 5.96% c) comparables raw beta re-
levered using Japfa’s current capital structure resulting in a Japfa-Beta of
1.34 d) weighted average country risk premium of 3.0% using revenue
contribution by geography as weights.
Optimistic views on terminal growth
In the computation of the terminal growth rate, we used a positive
terminal growth rate of 2.75% which was a conservative blend of the
projected world inflation rate (3%-4%) and forecasted global GDP growth
rate (3%-4%). We assume a mature stage terminal growth rate for Japfa. At
this stage, the company’s growth is minimal as more of the company’s
resources are diverted to defending its existing market share from
emerging competitors within the industry.
DCF analysis presents an undervalued share price
Our DCF analysis reveals an undervalued share price. To assess the spread
of our DCF valuation, we evaluated the sensitivity of our result using a
sensitivity table that varied WACC and the terminal growth rate. The most
conservative scenario indicates a upside of 7.6%. The most optimistic
scenario results in an upside of 90.8%. These results reinforce our positive
view of the severe undervaluation of Japfa by the market.
WACC Assumptions
Financial Statement Forecast
Source: IMF
Valuation
3.00%
3.10%
3.20%
3.30%
3.40%
3.50%
3.60%
3.70%
3.80%
3.90%
3.54%
3.56%
3.58%
3.60%
3.62%
3.64%
3.66%
3.68%
3.70%
3.72%
2019E 2020E 2021E 2022E 2023E
GDP Inflation Rate
Source: Team Estimates
Terminal Growth Rate Assumptions
Target Price Sensitivity Analysis
WACC
Terminal Growth Rate
0.93 2.25% 2.50% 2.75% 3.00% 3.25%
8.50% 0.95 1.02 1.08 1.16 1.24
8.75% 0.88 0.94 1.00 1.07 1.14
9.00% 0.82 0.87 0.93 0.99 1.06
9.25% 0.76 0.81 0.86 0.91 0.98
9.50% 0.70 0.75 0.79 0.85 0.90
25th Mar 2019

PRINSEP
CAPITAL
Summary Statistics
Minimum $ 0.34
Maximum $ 1.42
Mean $ 0.94
Skewness 0.0067
Kurtosis 0.0114
Median $ 0.94
Standard Deviation $ 0.14
Mean -2SD $ 0.66
Mean -1SD $ 0.80
Mean +1SD $ 1.07
Mean +2SD $ 1.21
SOTP valuation offers further support
We value Japfa on a sum-of-the-parts (SOTP) analysis based on valuation of
its business segments of: 1) PT Japfa TBK; 2) Dairy; 3) APO and 4)
Consumer Goods. Our target price after incorporating a 10% holding
company discount is SGD0.98 which implies an upside of 51.4% and a 11.7x
FY19E P/E, a 41% discount to the peer average of 19.8x.
Japfa is currently trading at 9.6x P/E and we believe this valuation gap
should narrow when market concerns over ASF affecting Japfa's APO
segment ease. The risk of an ASF outbreak would be easily mitigated with
Japfa’s high biosecurity standards and widely diversified revenue streams.
Overview of SOTP methodology
PT Japfa TBK: We took into account Japfa's 52.43% stake in PT Japfa TBK
and PT Japfa TBK’s current market capitalization in the IDX to determine
the market value of the segment.
APO: We value the APO segment at 10.5x P/E based on PT Japfa TBK's
blended forward 12M P/E. This is because the APO segment also utilises a
similar business model as PT Japfa TBK.
Dairy: We value the Dairy segment at 7x P/E. This is based on the Dairy
segment's 5 year expected CAGR of 7%, and an assumed PEG ratio of 1.
Consumer food: We do not ascribe any valuation for the consumer business
because of uncertainty regarding the profitability of this segment.
The segment had EBIT losses in FY17 and FY18 despite small positive EBIT
contributions in FY14-16. Hence, we are uncertain if a turnaround is on the
horizon. The decline in profitability in FY17 and FY18 was primarily due to
higher cost of major raw materials and heightened competition in
Indonesia’s ambient food sector. A further increase in advertising and
promotion activities is expected to worsen their margins.
Furthermore, to sensitise the valuation, we used 2x of PT Japfa TBK’s 52-
week volatility range (±34.6%) to determine the bull and bear cases.
Blue-grey sky scenarios
We performed a scenario analysis on the primary variables of the model in
order to derive the bull and bear scenario cases.
In order for us to change our recommendation to a SELL, Japfa’s APO
segment has to be severely hit by the ASF with a 100% wipeout of their
swine stocks. This translates to a 40% revenue cut and USD$42m operating
loss for the APO segment.
In addition, the Dairy segment’s operating margin would have to contract
due to increasing competition in the market. Furthermore, revenues of PT
Japfa’s DOC and animal feed sector would have to take a hit from the
culling of livestock to maintain price stability in the poultry market. Given
Japfa’s high biosecurity measures as well as their historical strong dairy
segment growth, we see no foreseeable event that may deteriorate Japfa’s
share price.
Monte Carlo Simulation
We further tested the spread of our valuation by varying the terminal
growth rate and WACC assumptions using a Monte Carlo simulation of
10,000 trials. After running the simulation, we observed a 87.5% probability
of finding a target price above 20% upside (SGD$0.78 per share), and only a
0.1% probability of a downgrade to a SELL, defined as a target price below
20% downside .
Football Field Analysis
To conclude our valuation, we conducted a football field analysis providing
a sense-check to our various valuation methods. Our analysis revealed that
our DCF-based target price of SGD$0.93 intersects the ranges of other
valuation methods, namely the team’s SOTP valuation, scenario-based
valuations as well as street estimates. The target price of SGD$0.93 is well
above the 52 week high of SGD$0.84.
Monte Carlo Simulation
Football Field Analysis
Valuation
0
100
200
300
400
500
600
700
800
900
$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
$1.05
$1.10
$1.15
$1.20
$1.25
No.ofoccurrences/10,000
$0.93$0.65
Sum-of-the-parts Valuation
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19
Scenario Analysis
$1.14
$0.93
$0.60
t
25th Mar 2019

PRINSEP
CAPITAL
0
2000
4000
6000
8000
10000
12000
14000
2014 2015 2016 2017 2018 2019F 2020F 2021F
Production Consumption
Indonesian Corn Market (‘000 tonnes)
Broiler Production in Indonesia
Raw Milk Price in China (Rmb/kg)
Source: PT Data Consult, 2018
Key Investment Risks
(1) Demand-Supply Imbalances in Animal Proteins
Oversupply of poultry, swine or milk may hurt prices and squeeze profits.
Poultry – Moderate Risk: Its Indonesian poultry business suffered from an
oversupply of DOCs from 2014-17, when excess imports of GPS saw ASP for
broiler and DOC drop below production cost. Prices have since stabilized
from government supply controls in 2017, such as egg culling programs and
a lower GPS import quota. Average FY18 broiler and DOC price grew 16.3%
YoY and 31.9% YoY to Rp19,624/kg and Rp5,526.7/chick, far above 2015
prices of Rp17,000/kg and Rp4,000/chick. However, these high prices are
unlikely to stay as GPS import quotas were re-raised in 2018 and 2019F,
although oversupply is also unlikely due to greater government oversight
and ample chicken consumption growth.
Swine – Moderate Risk: Japfa’s swine business in Vietnam was affected by
lower ASPs due to China’s import restrictions. Reduced demand in Vietnam
led to a low price environment from 4Q2016 till now. However, Japfa’s
high cost efficiency well-positions it to navigate these headwinds.
Dairy – Low Risk: Market glut in China due to low domestic consumption
and high import competition has caused raw milk prices to tumble. Despite
this, Japfa’s dairy business in China has seen consistent profitability and it
holds the leadership position in milk yields, thus risk seems low.
(2) Fluctuating Prices of Animal Feed Inputs
As chicken feed largely comprises corn (50%) and soybean meal (15-20%),
Japfa’s feed profitability is vulnerable to price fluctuations in corn and
soybean. Corn is mainly sourced domestically as the government’s self-
sufficiency program restricts corn imports. However, resulting corn
shortages have caused prices to rise to Rp6,000/kg, above the Rp4,000
reference ceiling price. While the government has temporarily raised
import quotas, uncertainty remains as to whether it will continue its
unsuccessful program. However, prices on imported soybean are likely to
stay low due to macroeconomic factors like the U.S.-China trade war and
an appreciating Rupiah, benefitting Japfa. Moreover, Japfa’s core
Indonesian animal feed business has high pricing power. It is able to pass on
higher input costs in their feed selling prices, thus enjoying stable
operating margins even in periods of downturn and Rupiah volatility. It is
viewed as a stable pillar of profitability, making risks low.
(3) Disease Outbreaks
Disease outbreaks reduce both demand and supply of livestock, having a
material effect on Japfa’s businesses. Avian influenza in the rainy season
routinely depresses livebird prices in Indonesia. The recent outbreak of
fatal African Swine Fever in Vietnam has also sparked fears that Japfa’s
swine stocks might be affected and culled, on top of falling consumer
demand for pork. However, factors in Investment Thesis #2 have helped to
mitigate this risk. Therefore, we expect this risk to be moderate.
(4) Heightened Competition in Ambient Food Sector
Aggressive price competition by rivals threatens Japfa’s dominant position
in ambient foods. Lower ASP of ambient food products and investment in
advertising and promotion to maintain market share has resulted in growing
operating losses. However, Japfa’s “So Good” and “So Nice” brands have
been gaining market share. In the long-term, shifting consumption
preference in emerging economies from wet markets to chilled and frozen
distribution channels and higher consumption of healthy and convenience
food products represents high growth potential for the Consumer Foods
segment. Thus, while risk is high in the short-term, it is expected to fall.
(5) High Net Gearing
Japfa’s net gearing ratio rose to 0.9x in FY18 on the back of increased
loans taken to acquire the remaining stake of their Dairy segment. This high
net gearing level would increase Japfa’s earnings sensitivity towards
interest rate hikes. However, the US Federal Reserve decided on 20th March
2019 to hold interest rates steady, signaling no further hikes in 2019. This
would alleviates concerns of higher financing costs. Nonetheless, Japfa has
a proven track record in maintaining a high level of borrowing at fixed
rates. With this debt structure, the company estimated that a 1% increase
in interest rates would only cause profit before income tax to fall by 1.68%
in FY16 and 3.26% in FY17. Thus, with proper gearing risk management, we
classify leverage risks to be low moving forward.
(6) Foreign Exchange Risks
Japfa operates in 5 different countries and hence exposes itself to high
foreign exchange risks. Japfa’s main functional currency is the Indonesian
Rupiah, with over 70% of revenues coming from Indonesia. Hence, over the
years, FX losses worsened whenever there was a depreciation of the
Rupiah. If volatility in the Rupiah persists, this would present a high risk for
Japfa.
11,000
11,500
12,000
12,500
13,000
13,500
14,000
14,500
15,000
-25%
-20%
-15%
-10%
-5%
0%
5%
2014 2015 2016 2017 2018
FX Losses/Gains as % of Profit before Tax USD/IDR
Effect of FX on Profit vs USD/IDR Rates
Source: Company Data, Bloomberg
-5
0
5
10
15
20
400
600
800
1000
1200
1400
1600
1800
2000
2013 2014 2015 2016 2017
Broiler production (Mt) % y-o-y
5.02
4.39
3.95
3.67
3.49
0
1
2
3
4
5
6
2014 2015 2016 2017 2018
Source: DBS HK
Source: Fitch Solutions
25th Mar 2019

PRINSEP
CAPITAL
Group StructureAppendix 1
Source: Japfa
Appendix 25th Mar 2019

PRINSEP
CAPITAL
Top ShareholdersAppendix 2
Rank Name No. of Shares % Shares Worth (SGD$)
1
SANTOSA FAMILY 1,055,082,615 56.7393 675,252,873
2 KOLONAS FAMILY 282,527,085 15.1935 180,817,334
3 SANTOSA HANDOJO 81,736,300 4.3955 52,311,232
4 TAN YONG NANG 46,810,691 2.5173 29,958,842
5 TAN YONG NANG FAMILY 30,000,000 1.6133 19,200,000
6 FIL Investment Management (Singapore) Ltd. 22,793,794 1.2258 14,588,028
7 Japfa Ltd. 16,420,700 0.8831 10,509,248
8 Dimensional Fund Advisors LP 9,852,100 0.5298 6,305,344
9 Nikko Asset Management Asia Ltd. 5,887,600 0.3166 3,768,064
10 Segall Bryant & Hamill LLC 4,572,480 0.2459 2,926,387
11 TIAA-CREF Investment Management LLC 3,328,700 0.179 2,130,368
12 MONTEIRO KEVIN JOHN 3,044,300 0.1637 1,948,352
13 BlackRock Fund Advisors 2,726,600 0.1466 1,745,024
14 Mellon Investments Corp. 2,502,700 0.1346 1,601,728
15 Amundi Singapore Ltd. 2,052,500 0.1104 1,313,600
16 Lazard Asset Management LLC 1,921,200 0.1033 1,229,568
17 Samsung Asset Management (Hong Kong) Ltd. 1,746,800 0.0939 1,117,952
18 Sydbank A/S (Investment Management) 1,687,300 0.0907 1,079,872
19 GOH GEOK KHIM 1,500,000 0.0807 960,000
20 DJE Kapital AG 1,472,700 0.0792 942,528
Source: ShareInvestor

PRINSEP
CAPITAL
Key Management TeamAppendix 3
Designation Name Information
Executive Deputy
Chairman
Handojo
Santosa
§ Mr. Santosa joined the Group in 1986 as a manager in
the edible oil division at Nilam in Surabaya
§ 1989 to 1997, he served as Vice-President Director of
subsidiary PT Japfa Comfeed Indonesia TBK
Executive
Director and
Chief Executive
Officer
Tan Yong
Nang
§ Mr. Tan joined the Group in 2007 as an assistant to the
Chief Executive Officer and Chief Operating Officer of
Corporate Services
§ 2011, he served as Chief Operating Officer of the
Group.
Executive
Director and
Chief Financial
Officer
Kevin John
Monteiro
§ Mr. Monteiro’s key roles are to develop a balanced
capital structure and to source adequate funding for
the Group and to ensure the integrity of financial data
for proper record keeping and accurate reporting.
Head of Poultry Bambang Budi
Hendarto
§ 1978, Mr. Hendarto joined the Group as a Nutrition
Manager in the Production Planning Control
Department.
§ 1981, He became a Vice Director (Deputy Director) of
PT Comfeed Indonesia
§ He was promoted several times and was appointed the
Vice-President Director of PT Japfa in 1997.
Head of Dairy Edgar Dowse
Collins
§ Mr. Collins is the Head of Dairy of our Group. He is
responsible for the day-today operations of the Group's
Dairy Division and is in charge of formulating,
developing and implementing both strategic and long-
term business plans for the Group's Dairy operations.
Deputy Chief
Operating Officer
Operational 1,
Poultry Business
Antonius
Harwanto
§ Mr. Harwanto is Deputy Chief Operating Officer,
Operational 1, Poultry Business, Indonesia, and he is
responsible for setting up the vision, mission and
strategies to further grow the Group’s poultry business
in Indonesia.
Head of Legal
and Compliance
Christina
Chua Sook
Ping
§ Ms. Chua oversees all legal, compliance and secretarial
functions of the Group's operations. She joined the
Group in 2010.
§ Ms. Chua has more than 20 years of experience in legal
practice.
Head of Human
Resources
Jasper Tan
Kai Loon
§ Mr. Tan is the Head of Human Resource is in charge of
all human resource matters in the Group and
responsible for human resource management, policy
governance and administration.
§ He joined the Group in 2012.
Source: Japfa

PRINSEP
CAPITAL
SWOT AnalysisAppendix 4
Strengths Weaknesses
Opportunities Threats
Core competencies in scale,
standardization, technology
and animal health
Concentration risk in Indonesia
Macroeconomic uncertaintyDiet shifts towards meat
High production yields across
its products
High net gearing
Diversification across 5 countries
and 5 protein staples
Changes in government regulationsGrowing Halal food market and
regional Muslim population
Higher demand for protein-rich,
ready-to-eat foods
Demand-supply imbalances
High competition in consumer foods
Strengths Description
Core competencies
in scale,
standardization,
technology, animal
health
(1) Scale: Ability to manage mega-scale farming operations of over 34,000 employees across 5 countries enables Japfa to enjoy economies of scale and an
established network
(2) Technology: Advanced feed technology and JVs with leading genetics companies Aviagen and Hyper for superior breeds and genetics, combined with
best farm management practices, enables production of high quality animal proteins that are valued by customers
(3) Animal Health: Best in class bio-security with stringent operating procedures and in-house vaccine production firm PT Vaksindo ensure high produce
standards that are valued by customers and also protect livestock levels
(4) Standardization and Replication: Replication of best practices and infrastructure design across 5 protein groups and 5 countries enables rapid and
large-scale expansion and also provides a strong foundation for Japfa’s diversification strategy
High production
yields across its
products
Japfa holds leading upstream market positions in multiple protein staples across regions as of FY17:
(1) China: Milk yield 37kg/day (No. 1)
(2) Indonesia: Poultry feed production capacity 24%, DOC production 29% (No. 2)
(3) Myanmar: Poultry feed production capacity 31%, DOC production 21% (No. 2)
(4) Vietnam: DOC production 20% (No. 3)
Diversification across
5 countries and 5
protein staples
Mitigates cyclical fluctuations due to harvests and festivals, macroeconomic factors that affect prices, and government policies
Weaknesses Description
Concentration Risk in
Indonesia
Japfa generates 74% of revenue from its Indonesian operations, hence there is a risk that a single sudden catastrophic event such as a tsunami will have a
huge detrimental impact on its business
High net gearing Japfa’s net gearing ratio rose to 0.9x in FY18 on the back of increased loans taken to acquire the remaining stake of their Dairy segment, increasing Japfa’s
earnings sensitivity towards interest rate hikes. However, percentage increase in interest rates would only cause profit before income tax to fall by 1.68% in
FY16 and 3.26% in FY17. With proper management, this weakness can be reduced.
Opportunities Description
Diet shifts towards
meat
Rising affluence in emerging Asian markets has caused diet preferences to shift in favor of meat. Together with rapid population growth, the meat and
poultry market is expected to grow exponentially in the future, with total meat and poultry sales in Asia having a forecasted CAGR of 11.2% from 2018-22.
Growing Halal food
market
The $632bn global Halal food market is expected to grow at a 6.1% CAGR from 2018-24 with much of it concentrated in Southeast Asia due to its large Muslim
population. Japfa already has Halal certification on its poultry sales and brand recognition as a Halal food producer, thus it is poised to take advantage of
this key growth market.
Higher demand for
protein-rich, ready-
to-eat foods
Emancipation of women has led to more dual-income households which seek convenient food solutions, while the increased adoption of formal retail in
emerging markets has grown demand for consumer packaged foods. Coupled with the shift towards high-protein diets, demand for processed meat ready-to-
eat products is likely to rise.
Threats Description
Macroeconomic
Uncertainty
Factors such as political instability, U.S.-China Trade War and Rupiah depreciation/appreciation can potentially impact Japfa’s businesses by affecting the
prices of its raw materials and products.
Changes in
government
regulation
Government regulations may impact Japfa’s business. For example, its restrictions on corn imports caused corn prices to rise exponentially. Japfa
experienced rising feed costs and thus higher cost of production, hurting its profitability.
Demand-supply
imbalances in animal
proteins
Oversupply of poultry, swine or milk may hurt prices and squeeze profits. For instance, China’s import restrictions on pork from Vietnam caused oversupply
of pork and prices of pork to fall, hurting Japfa’s profits on its Vietnamese business.
High competition in
consumer ambient
foods
Aggressive price competition by rivals threatens Japfa’s dominant position in ambient foods. Lower ASP of ambient food products and investment in
advertising and promotion to maintain market share has resulted in growing operating losses. However, Japfa’s “So Good” and “So Nice” brands have been
gaining market share. In the long-term, shifting consumption preference in emerging economies from wet markets to chilled and frozen distribution channels
and higher consumption of healthy and convenience food products represents high growth potential for the Consumer Foods segment. Thus, while risk is high
in the short-term, it is expected to fall.

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Corporate Social ResponsibilityAppendix 5
Source: Japfa

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Timeline of Key Events since IPOAppendix 6
Japfa’s historical share price since IPO
No. Date Event
1 15 Aug 2014 Japfa debuts on the SGX, closed at S$0.845 (+5.6%) compared to IPO price of S$0.80.
2 27 Feb 2015 Japfa’s 4Q14 Net Loss Up 282% to US$13.9 million due to weak performance in Indonesia’s
animal protein business
3 29 Feb 2016 Japfa’s FY15 earnings beat street expectations. Significant improvement in profitability was
due to PT Japfa TBK’s poultry business turning around in 2H15, on the back of a better pricing
environment for DOC and broilers
4 01 Nov 2016 Weakness in Vietnam swine due to China’s import ban. Japfa has swine-farming operations in
Vietnam.
5 27 Jul 2017 2Q17 results below expectations due to depressed swine price in Vietnam. Decline in the
Group’s profitability was largely due to a substantial loss in Vietnam where ASPs for swine
continued to slide to levels well below operating costs.
6 02 May 2018 1Q18 reported strong recovery in earnings driven by better Indonesian poultry and Vietnam
swine ASPs.
7 30 Jul 2018 2Q18 reported strong contributions from PT Japfa TBK arising from higher sales volume and
margins across all poultry businesses. APO returns to profitability as a result of the
rebalancing of the demand-supply dynamics in the Vietnam swine market
8 19 Feb 2019 First confirmed case of ASF in Vietnam. Japfa shares plunged 22.6% on worries of contagion.
9 28 Feb 2019 Japfa posts 80-fold increase in FY18 earnings to US$100.4m on record revenue. Indonesian
poultry recorded higher feed sales volume and higher ASPs - Vietnam operations registered
sharp turnaround in profitability. Full ownership of Dairy segment enables Japfa to recognise
100% contribution in FY2018.
0.2
0.4
0.6
0.8
1
Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19
1
9
2
8
7
6
3
4
5

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Share buyback HistoryAppendix 7
Company Buyback Chart
Company Buyback Transactions
Date of Announcement Date of Effective Change Bought
[‘000]
Price (SGD) Estimated Transaction Value [SGD‘000]
15 Mar 2019 15 Mar 2019 319 0.645-0.655 207
14 Mar 2019 14 Mar 2019 600 0.665-0.67 400
12 Mar 2019 12 Mar 2019 100 0.7 70
08 Mar 2019 08 Mar 2019 130 0.695-0.7 91
07 Mar 2019 07 Mar 2019 450 0.7-0.715 318
06 Mar 2019 06 Mar 2019 450 0.71-0.715 321
04 Mar 2019 04 Mar 2019 300 0.705-0.71 212
16 Oct 2018 16 Oct 2018 100 0.61 61
11 Oct 2018 11 Oct 2018 50 0.59 30
08 Oct 2018 08 Oct 2018 500 0.61-0.625 309
05 Oct 2018 05 Oct 2018 98 0.63-0.635 62
04 Oct 2018 04 Oct 2018 48 0.635 30
24 Sep 2018 24 Sep 2018 300 0.615-0.625 186
20 Sep 2018 20 Sep 2018 79 0.625 50
18 Sep 2018 18 Sep 2018 50 0.62 31
07 Mar 2018 07 Mar 2018 345 0.445 157
05 Mar 2018 05 Mar 2018 300 0.448-0.455 135
02 Mar 2018 02 Mar 2018 576 0.4313-0.45 254
02 Feb 2018 01 Feb 2018 586 0.495-0.52 297
Key Observations:
1. Share price rallied strongly subsequent to share repurchases
+50%
+30%
B Company Buyback Conducted

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Analysis of Company Buyback for Last 3 Calendar YearsAppendix 8
Q1 (Jan to Mar) Q2 (Apr to Jun) Q3 (Jul to Sep) Q4 (Oct to Dec) Total
[SGD’000]
2019 1,619 1,619
2018 843 267 492 1,602
2017 684 5,264 706 6,854
Breakdown by Transaction Value
Breakdown by Transaction Volume
Breakdown by Number of Trades
[’000]
2019 2,349 2,349
2018 1,807 429 796 3,032
2017 868 8,825 1,421 11,114
2019 7 7
2018 4 3 5 12
2017 2 8 3 13
Key Observations:
1. 1Q19 transaction value already exceeded FY18 transaction value
2. 1Q19 transaction volume represented 77% FY18 transaction volume

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Income StatementAppendix 9
USD$m FY17 FY18 FY19E FY20E FY21E
Revenue 3190 3533 3647 3927 4166
Cost of sales -2616 -2763 -2935 -3160 -3353
Gross profit 574 770 712 766 813
Marketing and distribution costs -137 -144 -147 -144 -156
Administrative expenses -248 -284 -277 -271 -294
EBIT (Operating Income) 189 342 287 351 363
Finance Costs -67 -83 -98 -104 -110
Interest income 4 4 3 6 6
Other gains 11 24 0 0 0
Gain on disposal of asset held for sale 0 0 0 0 0
Other losses -12 0 0 0 0
Foreign exchange adjustments losses, net 5 -33 -33 -33 -33
Decrease in fair value of biological assets -22 -12 -12 -12 -12
Share of loss from equity-accounted joint ventures
PBT (Profit before income tax) 108 244 148 208 215
Income tax expense -51 -65 -40 -56 -58
PAT (Profit, net of income tax) 56 178 108 152 157

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Balance SheetAppendix 10
ASSETS
Non-current assets
Property, plant and equipment 1011 1010 1101 1175 1258
Investment properties 5 5 5 5 5
Intangible assets 10 12 12 12 12
Investments in subsidiaries 0 0 0 0 0
Investments in joint ventures 6 6 6 6 6
Biological assets, non-current 351 365 365 393 417
Deferred tax assets 24 24 24 24 24
Other receivables, non-current 15 15 7 7 8
Other financial assets, non-current 19 30 30 30 30
Other assets, non-current 65 82 82 82 82
Total non-current assets 1507 1549 1632 1734 1842
Current assets
Inventories 671 817 778 837 888
Biological assets, current 76 83 78 84 90
Trade and other receivables, current 179 194 192 207 219
Other financial assets, current 1 2 2 2 2
Other assets, current 75 75 75 75 75
Cash and cash equivalents 230 164 344 351 364
Cash pledged for bank facilities 4 4 4 4 4
Total current assets 1236 1340 1473 1561 1643
Total assets 2743 2889 3104 3295 3485
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 941 981 981 981 981
Treasury shares -5 -6 -6 -6 -6
Retained earnings 385 482 590 742 899
Other reserves -460 -451 -451 -451 -451
Translation reserve -168 -226 -226 -226 -226
Equity, attributable to owners of the parent 694 779 887 1040 1197
Non-controlling interests 329 351 351 351 351
Put options reserve
Total equity 1023 1130 1238 1391 1548
Non-current liabilities
Put option financial liabilities
Provisions 106 85 85 85 85
Deferred tax liabilities 4 3 3 3 3
Trade and other payables, non-current 1 0 1 1 1
Loan and borrowings, non-current 635 778 778 778 778
Other liabilities, non-current 4 3 3 3 3
Total non-current liabilities 749 869 870 870 870
Current liabilities 0 0 0 0 0
Income tax payable 20 37 37 37 37
Trade and other payables, current 623 389 495 533 566
Loan and borrowings, current 319 449 449 449 449
Other liabilities, current 9 14 14 14 14
Total current liabilities 971 890 996 1034 1067
Total liabilities 1720 1759 1866 1904 1937
Total equity and liabilities 2743 2889 3104 3295 3485

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Cash Flow StatementAppendix 11
Cash flows from operating activities
Profit before income tax 108 244 148 208 215
Adjustments for: - - - - -
Amortisation of intangible assets 2 2 - - -
Amortisation of land use rights 0 1 - - -
Depreciation of property, plant and equipment 95 104 103 109 116
Depreciation of investment properties 1 - - - -
Fair value loss on financial assets - - - - -
Fair value loss on derivative financial instruments 5 (16) - - -
Fair value loss on biological assets 22 12 - - -
Gain on disposal of other financial assets - - - - -
Gain on disposal of property, plant and equipment and investment
properties (2) 0 - - -
Gain on disposal of asset held for sale - - - - -
Fair value gain on call option assets - - - - -
Gain on buy back of bonds payable - - - - -
Increase in provision for retirement benefits 16 18 - - -
Interest income (4) (4) (3) (6) (6)
Interest expense 67 83 98 104 110
Gain on disposal of a subsidiary - - - - -
Share options granted by a subsidiary 0 0 - - -
Value of employee services received pursuant to performance share
plan 0 1 - - -
Value of employee services received pursuant to performance share
plan by subsidiary 0 0 - - -
Share of loss from equity-accounted joint ventures 0 (0) - - -
Write-off of property, plant and equipment 0 1 - - -
Net effect of exchange rate changes (5) 1 - - -
Operating cash flows before changes in working capital 307 446 346 416 435
- - - - -
Changes in Working Capital: - - - - -
Inventories (59) (96) 40 (60) (51)
Biological assets (45) (40) 5 (34) (29)
Trade and other receivables (30) (14) 10 (15) (13)
Other assets (8) 8 - - -
Trade and other payables 67 33 107 38 33
Provisions (12) (13) - - -
Other liabilities 1 4 - - -
Net cash flows from operations before tax 221 328 509 345 374
Income taxes paid (80) (72) (40) (56) (58)
Net cash flows from operating activities 140 256 469 289 316

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Cash flows used in investing activities - - - - -
Acquisition of subsidiaries - (2) - - -
Additional investment in joint ventures (2) - - - -
Purchase of property, plant and equipment (Note 23B) (212) (221) (194) (183) (199)
Proceeds from disposal of property, plant and equipment 3 6 - - -
Proceeds from disposal of investment properties 8 - - - -
Proceeds from disposal of investment in other financial assets - - - - -
Proceeds from disposal of assets held for sale - - - - -
Proceeds from disposal of subsidiary, net of cash disposed of (Note
18) - - - - -
Purchase of investment properties - (0) - - -
Purchase of financial assets (5) (0) - - -
Purchase of biological assets (27) (16) - - -
Purchase of intangible assets (3) (3) - - -
Purchase of land use rights (3) (2) - - -
Interest income received 4 4 3 6 6
Net cash flows used in investing activities (237) (235) (191) (177) (193)
- - - - -
Cash flows (used in)/from financing activities - - - - -
Dividends paid by subsidiary to non-controlling interests (25) (42) - - -
Dividends paid to equity holders of the Company (13) (7) - - -
Proceeds from issuance of shares - - - - -
Proceeds from issue of bonds 320 - - - -
Issue of new chares by combining entities under resturcturing
exercise - - - - -
Proceeds from issue of new shares by a subsidiary to non-controlling
interests 8 - - - -
Proceeds from disposal of shares in subsidiary to non-controlling
interests without change in control - - - - -
Acquisition of non-controlling interests without change in control - - - - -
Transaction cost paid for acquisition of non-controlling interests (1) (223) - - -
Decrease in cash restricted in use 1 0 - - -
Purchase of treasury shares by the Company (5) (1) - - -
Purchase of treasury shares by subsidiary (0) - - - -
Buy back of bonds payable - - - - -
Repayment of bonds payable (315) - - - -
Net movements in shareholders' loans - - - - -
Increase in new bank loans - 276 - - -
Increase/(decrease) in working capital loans 96 (5) - - -
Interest expense paid (67) (83) (98) (104) (110)
Net cash flows (used in)/from financing activities (1) (84) (98) (104) (110)
- - - - -
Net (decrease)/increase in cash and cash equivalents (98) (63) 180 8 13
Effect of exchange rate changes on cash and cash equivalents (3) (4) - - -
Cash and cash equivalents, beginning balance 331 230 164 344 351
Cash and cash equivalents, ending balance 230 164 344 351 364
Cash Flow Statement (continued)Appendix 11

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Peer ComparablesAppendix 12

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Risk AssessmentAppendix 13
Probability
LowMediumHigh
Low Medium High
Impact
Demand-supply
imbalances in animal
proteins
Disease outbreaks
Strong competition
in ambient food
Fluctuating prices of
animal feed inputs
FX RisksHigh net gearing

PRINSEP
CAPITAL
Metric Units Formula Application
Cows & Dairy
Milk production Milk yield l/qty Milk production/Dairy Cows Measure of production efficiency. Higher yield
generally means less inputs per production unit.
Milk
premium
dollars Milk product revenue/(Milk
Products Sold * Average Milk
Price)
Milk price received by farm compared to other
farms. Premium >1 is desirable and premium <1 is
undesirable
Total dairy
cows
qty Number of dairy cows Herd size comparison
Intensity of
Livestock
Production
Livestock
Density
qty/ ha Dairy cows / Non-Cash Crop
Area
Measures land use intensity for dairy cows
Labor
Intensity
hours/
ha
Annual hours worked / farm
area
Indirect measure of technology, useful for
comparing farm productivity.
Feed Mix Fodder area ha/ ha Fodder area/ grass area Measures reliance of fodder in feeding strategy; can
be used to infer land use footprints
Grass area ha/ ha Maize area/ grass area Measures maize dependence in feeding strategy; can
be used to infer land use footprints
Chicken
Feed Conversion Ratio (FCR) - Feed given / Animal weight
gain
Measures efficiency with which the bodies of
livestock convert animal feed into the desired
output, i.e. the efficiency of a feeding strategy.
Lower FCRs are preferred.
Stock to use Ratio (S/U) - Carryover stock / % of total
use of the commodity
Measures supply and demand interrelationships of
commodities. When S/U goes down, prices go up. It
is useful for measuring prices of agriculture
commodities such as wheat, which are heavily used
in chicken feed
Day-old chick mortality % Day-old chicks alive / total
day-old chicks
Measures quality and is highly related to the price of
the chicks that broiler farms must pay to the
hatchery
Average Selling Price (ASP) Dollars Net sales / number of
products sold
Average price of a product or commodity sold across
channels or markets
Swine
Feed Conversion Ratio (FCR) - Feed given / Animal weight
gain
Measures efficiency with which the bodies of
livestock convert animal feed into the desired
output, i.e. the efficiency of a feeding strategy.
Lower FCRs are preferred.
Wean-to-finish productivity % % of pigs sold to primary
market / % of pigs weaned
or placed
Measures pig sales and thus the demand for pigs
Industry MetricsAppendix 14

PRINSEP
CAPITAL
Source: BioNinja
Feed Conversion RatioAppendix 15

PRINSEP
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Broiler Production Industry StructureAppendix 16
Source: McKay, 2008
Swine Production Industry StructureAppendix 17
Source: Department of Agriculture and Fisheries

Japfa Ltd (SGX: UD2)

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