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Dear Siti,
Good morning,
Japfa Comfeed
Indonesia : 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. (Norman Choong,
CFA)
Link
to Daily report: Indonesia Morning Cuppa - 130616
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Media Highlights:
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Corporates
Blue Bird aims
IDR82bn from premium vehicle sales
Blue Bird (BIRD IJ,
BUY, TP: IDR7,500) targets to receive IDR82bn from the sales of its Silver
Bird’s vehicles. The company estimated that it can sell 400 units of Silver
Bird vehicles from 2009-2010 to the secondary market until the end of this
year. Currently, Blue Bird used vehicle sale reached 60 units per months,
with Mercedez Benz brand reached 30 units per month. The company will also
introduce a promotion scheme to increase its sales. For example, Mercedez
Benz E200 price will be lowered by IDR25m. (Bisnis Indonesia)
Comments: Given the slowdown
in the current market condition for second hand cars, we think that the
company’s target to achieve IDR82bn from the sale of second hand cars is
achievable. In our model, we estimate that the company’s could receive
IDR90bn (which is lower compare to FY14 of IDR124bn) from the sale of second
hand cars – which is 10% from the net income. In the past, Blue Bird’s sale
of second hand cars contributed roughly around 20% of the net income. (David
Hartono)
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Garuda Indonesia to
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Indonesia Paradise
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Goodyear to optimize
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Jakpro to start LRT
construction in September
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia |
