Company update:
Japfa Comfeed Indonesia (JPFA IJ, BUY, TP: IDR1,150),
KKR To Buy 10.4% Stake For USD81.2m
Japfa Comfeed Indonesia (JPFA IJ, BUY, TP: IDR1,150),
KKR To Buy 10.4% Stake For USD81.2m
KKR has signed a
subscription agreement to purchase 10.4% of Japfa Comfeed Indonesia (Japfa) for
USD81.2m (IDR1.07trn) through a combination of private placement of new shares
and share sales by Japfa Limited, its holding company. Japfa would use the proceeds
to pare down its debt. We fine-tune our estimate to incorporate the development
above. Reiterate BUY and DCF-based TP of IDR1,150 (12% upside), implying 16.5x
FY16 P/E. We remain upbeat on Japfa given:
1. Its net positive position, lower gearing and
interest savings post-exercise;
2. KKR would have one seat in the board, giving
rise to better corporate governance;
3. Japfa’s undemanding valuation of 15-12x
FY16-17F P/Es.
¨
Briefly
on KKR. Formerly
known as Kohlberg Kravis Roberts & Co, KKR is a US multinational private
equity firm that specialises in private investment in public equity. KKR also
invested in Tiga Pilar Sejahtera Food (AISA IJ, NR), an Indonesian company
engaged in distribution of snack, dried noodle and rice.
¨ 6.57% new shares
issuance and 3.87% share sales. Japfa will hold an extraordinary general
meeting on 1 July 2016 to approve a 2-year, non-preemptive rights issue
programme of up to 10% of Japfa’s existing share capital at a floor price of
IDR935.60/share. Once approved, Japfa will issue new shares worth 6.57% of the
enlarged share capital, which KKR will subscribe. KKR will also purchase
another 3.87% of Japfa’s existing shares from Japfa Limited.
¨ Proceeds earmarked to
pare down debt. The
exercise will yield IDR701bn for Japfa and IDR375bn for Japfa Limited.
Management indicates that proceeds for Japfa are earmarked to pare down its
short-term debt. The company’s net gearing would be reduced to 0.8x from 0.9x.
¨ Net positive, better
capital structure and interest savings. Ceteres paribus, the new shares
issuance would dilute Japfa’s earnings per share by 7%. However, the savings in
interest expense would outweigh the dilution due to its high gearing and
interest rate. All in, we increase Japfa’s FY16F-17F net profits by 8-9.6%
respectively, while our EPS forecast are increased by 5-7% respectively after
incorporating the new shareholding base.
¨ Industry landscape
improving; reiterate BUY. The Ministry of Agriculture has recently issued
regulation 26/2016, in which it would continue the parent stocks culling
programme if poultry prices plummet again in 2H16. Previously, the culling of
parents stocks was halted at 3m, vs the intended 6m due to price control
allegations by the Indonesian Business Competition Supervisory Commission.
¨
Key
risks are
IDR depreciation and raw material cost fluctuations (in terms of local corn
price, imported corn price and imported soybean meal price). Other more remote
risks are disease outbreak and regulatory risks.
Kindly click the following link for the full report: Japfa Comfeed Indonesia : KKR To Buy 10.4% Stake For USD81.2m
Best regards,
Norman Choong, CFA
Assistant Vice
President
Research Analyst – Utilities,
Oil & Gas, Poultry
PT. RHB Securities
Indonesia
