OVERWEIGHT Poultry

Equity Research Poultry

See important disclosure at the back of this report www.danareksa.com

Friday,16 July 2021

Poultry OVERWEIGHT

<Maintain> Still solid amid turbulence

Our view remains unchanged as we believe the weak share prices led by the drop in broiler prices is an opportunity. We believe the sector will continue to book higher profitability in FY21, albeit lower in 2H21, on the back of higher chicken prices and manageable increases in raw material costs. We are overweight on the sector with JPFA as our top pick. The government`s culling program to support DOC and broiler prices. As demand for chicken will still be soft given the protracted covid-19 pandemic, supply adjustment remains crucial in the short-term to maintain DOC and broiler prices. Fortunately, the new Director General has been doing a good job in managing the nationwide culling program which has resulted in stable broiler prices. We expect continuous supply adjustments throughout 2021 to be the key catalyst for higher broiler prices.

Moderation in local corn prices. Since the end of 2020, local corn prices have been in a rising trend due to higher demand for feed and a lack of feed wheat in the market. Compared to the FY20 average, corn prices in 1H21 are 14% higher. This will result in lower feed margins, especially in 2Q21 and 3Q21. However, we expect a normalization in corn prices in 2H21 with the FY21 average 10% higher than in FY20 on the back of: 1) moderate feed demand, 2) recovery in the supply of feed wheat, and 3) lower corn consumption in the feed formulation.

Rising VAT is negative but bearable. Higher VAT is generally bad for consumption in general and chicken products specifically if imposed on basic foods. Nonetheless, the impact would not be so severe on chicken consumption, we believe, due to: 1) the government’s multi tariff scheme, 2) the minimal impact on middle-upper income consumers, and 3) the deployment of the government`s wealth program.

Overweight on the sector. The drop in livebird prices, which is reflected in the sector’s share price performance, is in line with our expectations. As such, we reiterate our Overweight call on the sector given the fall in share prices offers a good entry point as we believe the recovery in chicken prices and lower cost of raw materials will materialize in 2H21.

Risks to our call. Higher chicken prices and lower raw material prices are crucial factors in determining our stance. Thus, the effectiveness and continuity of culling programs and the availability of corn substitutes such as feed wheat pose downside risks to our call.

CPIN relative to JCI Index

xxxx

JPFA relative to JCI Index

xxxx Source : Bloomberg

x Victor Stefano

(62-21) 5091 4100 ext.

[email protected]

Target Price

Market Cap. P/E (x) P/BV (x) ROE (%)

Company Ticker Rec (Rp) (RpBn) 2021F 2022F 2021F 2022F 2022F

Charoen Pokphand Indonesia

CPIN IJ BUY 8,400 104,947.2 22.8 19.7 4.0 3.5 19.1

Japfa Comfeed Indonesia JPFA IJ BUY 2,100 19,290.2 10.5 10.7 1.6 1.4 14.0 Malindo Feedmill Indonesia MAIN IJ BUY 1,000 1,500.0 6.7 7.7 0.6 0.6 8.0

2 www.danareksa.com See important disclosure at the back of this report

Stable broiler prices due to continuous culling

Supply adjustment remains crucial in maintaining broiler prices

As demand for chicken will still be soft given the protracted covid-19 pandemic, supply adjustment remains crucial in the short-term to maintain DOC and broiler prices. Fortunately, the new Director General has been doing a good job in managing the nationwide culling program which has resulted in stable broiler prices. We expect continuous supply adjustments throughout 2021 to be the key catalyst for higher broiler prices.

Exhibit 1: Livebird prices in West Java

Source: Pinsar, BRI Danareksa Sekuritas

Lower production costs from less culling

Despite the merits, culling programs are costly. However, we expect the cost of culling to go down in line with the decline in GPS (grandparent stock) imports. This should translate into higher margins for DOC due to lower depletion costs. We expect this to materialize in 2022 or 4Q21 at the earliest.

Exhibit 2: Indonesia`s grandparent stock imports

Source: Various sources, BRI Danareksa Sekuritas

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www.danareksa.com See important disclosure at the back of this report

Lower feed margins are expected

Rising local corn prices YTD but normalization expected in 2H21

Since the end of 2020, local corn prices have been in a rising trend due to higher demand for feed and a lack of feed wheat in the market. Compared to the FY20 average, corn prices in 1H21 are 14% higher. This will result in lower feed margins, especially in 2Q21 and 3Q21. However, we expect a normalization in corn prices in 2H21 with the FY21 average 10% higher than in FY20 on the back of: 1) moderate feed demand, 2) recovery in the supply of feed wheat, and 3) lower corn consumption in the feed formulation.

Exhibit 3: The local corn price

Source: Bloomberg, BRI Danareksa Sekuritas

Rising local corn prices amid higher production

The rising local corn prices since early 2021 were not caused by lower supply. Based on estimated local corn production, in 5M21 the total corn produced increased by 8.5% y-o-y. This is also confirmed by the higher local corn purchase volume which reached 2.7mn MT in 5M21 (+12% y-o-y). We expect a moderation in feed demand in 2H21 as we foresee moderate chicken consumption.

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Exhibit 4: Estimated local corn production

Source: Ministry of Agriculture, GPMT, BRI Danareksa Sekuritas

Exhibit 5: Local corn purchases, stocks, and prices at the feed mill


Recovery in the supply of feed wheat to provide support for local corn prices

Aside from higher consumption due to higher demand for poultry feed, the increase in local corn prices during 1H21 owed to a lack of feed wheat in the market. Based on imported feed wheat monthly data, there were almost zero imports in Dec-20, Feb-21, and Mar-21. This stands in contrast to the same period last year when more than 2mn kg of feed was imported each month.

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Exhibit 6: Feed wheat imports (in kg)

Source: Ministry of Trade, BRI Danareksa Sekuritas

Lower corn usage in the feed formulation

It is possible to reduce corn usage amid higher corn prices as the estimated corn used in feed formulation was at its highest level since the corn import ban in 2016 (see exhibit 7). Due to lower feed demand amid higher corn production in 2020, the estimated use of other raw materials such as SBM, CGM, and DDGS decreased in favor of a higher corn composition in the formulation (see exhibit 8).

Exhibit 7: Corn purchases vs feed production


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Exhibit 8: Plant-based materials purchased/import vs feed production


Normalized SBM prices but still higher y-o-y

SBM prices have been declining due to higher-than-expected production in Argentina and lower imports from Japan and SEA. China’s imports remain strong, thereby providing support for SBM prices. Nonetheless, USDA 2021/2022 ending stock projections are up by 0.7mn tons to 12.16mn tons in Jul-21.

We expect average SBM prices at USD382/ton (+20% y-o-y) in FY21F. This is lower than the YTD (as at 12 July 2021) average price of USD410/ton (+40% y-o-y) as we expect SBM prices to moderate in 2H21 from the high base in 1H21.

Exhibit 9: Soybean meal prices (IDR/kg)


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Threat from VAT on chicken consumption Negative impact on consumption in general

Higher VAT is generally bad for consumption in general and chicken products specifically if imposed on basic foods. Nonetheless, the impact would not be so severe on chicken consumption, we believe, due to: 1) the government’s multi tariff scheme, 2) the minimal impact on middle-upper income consumers, and 3) the deployment of the government`s wealth program.

The government has prepared a multi tariff scheme on VAT

Not all items will be subject to a general VAT tariff of 12%. Indeed, many goods and services consumed by the majority of people may be subject to reduced tariffs. According to the Ministry of Finance, specific household basic groceries will be kept affordable with the imposition of a 5% tariff while services like education and public transport will be subject to a 7% tariff. VAT for specific business, like agriculture may be subject to a final tax of 1%.

Less impact on the middle-upper income consumer segment

Despite the price increases, chicken demand from middle-upper income groups will remain robust as we believe: 1) F&B forms a small part of monthly expenditure, 2) chicken is one of the cheapest animal proteins, and 3) the majority of the consumption is already in the form of advanced processed food such as nuggets and sausages in addition to value-added products sold at places like hotels, restaurants, and via catering.

Strategic goods and services cannot be exempt but the VAT may not be collected

The principle of applying VAT on all goods and services is to register them in the VAT system so that the supply chain from upstream to downstream can be monitored administratively and can be recorded from the distribution to consumption. However, for strategic food commodities like chicken, eggs, and milk, incentives may be given i.e., the VAT may not be collected or it may be borne by the government. This will allow better VAT administration while preserving the prices of strategic consumer staples. Nonetheless, the higher VAT in general will still have an adverse impact on chicken consumption albeit minimally.

Exhibit 10: Proposed new VAT scheme

Source: Ministry of Finance

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Shifting to processed foods

Higher general VAT at 12% and VAT of 5% imposed on broilers would cause the price difference between broilers and processed foods to narrow, i.e. from 10% to 7%. This would, in turn, encourage the consumption of processed foods which will be beneficial in the long run. This will benefit all the integrators under our coverage as they have strong processed food brands with JPFA and CPIN being impacted the most financially as they had respective revenues contributions from processed foods at 9% and 8% in FY20.

Background on higher VAT rates

From several measures planned by the Indonesian government to boost state revenues, the proposal to change Value Added Tax (VAT) rates seems to be the most controversial. The normal VAT rate will be raised from the current 10% to 12%. The increase in the VAT rate is actually still within the tolerated range stipulated by Law Number 42 Year 2009 which allows the VAT rate to be set from 5% to 15%. However, the idea to impose VAT on basic foods (which are currently not subject to VAT) led to strong objections. The basic needs that are stipulated by Law No 42 of 2009 include rice, grains, corn, sago, soybeans, salt, unprocessed meat, eggs, milk, and fruit and vegetables.

VAT comparison with neighboring countries

According to studies and benchmarking done by the Ministry of Finance, there are more countries with VAT > 10% than < 10%. There are 24 countries with VAT rates >20%, most of which are located in Scandinavia. Several neighboring ASEAN countries have lower VAT rates such as Myanmar (5%) and Singapore (7%) while the Philippines has a higher standard VAT rate of 12%.

Exhibit 11: Indirect taxation across ASEAN

Source: ASEAN Briefing Ltd.

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Exhibit 12: Global VAT benchmark


Exhibit 13: Global VAT benchmark


Still room to boost income from other taxes

With 42% of tax revenues coming from tax on goods and services, Indonesia`s tax on goods and services as a percentage of GDP (5.0%) is slightly higher than in Singapore (3.9%) and Malaysia (3.2%) but far below Thailand (9.9%) and the Philippines (7.8%). Based on the strategic group map, we believe Indonesia has more room to increase its tax income from other taxes besides VAT as Indonesia has the lowest tax revenues as a % of GDP compared to neighboring countries.

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Exhibit 14: Taxes on goods and services vs total tax revenues strategic group map (2018)

Source: OECD, BRI Danareksa Sekuritas

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Exhibit 15: Taxes on goods and services in surrounding countries

Country Tax Rate Type Remarks

Australia GST 10% Standard Goods and Services Tax (GST)

Indonesia VAT 10% Standard All other taxable goods and services

0% Zero Exports; capital manufacturing equipment; and construction services

0% Exempt Printed books; medical supplies; real estate; domestic energy; livestock; and agriculture products

Japan CST 10% Standard Consumption tax (since 1 Oct 2019 when the rate increased from 8%)

8% Reduced Basic foodstuffs

0% Zero Exports and some services provided to non-residents

Malaysia SST 10% Standard

Goods SST on goods is charged throughout the B2B chain to the final consumer and is not deductible by tax payers. This includes a liability on imported goods – a low-value exemption may apply

6% Standard

Services SST on services is only due when supplied to the non-tax registered final consumer. Services liable include: Restaurants; Hotels and accommodation; Car hire, rental and repair; Domestic flights; Insurance; Credit cards; Legal and accounting; Business consulting; Electricity; Telecoms, pay-TV; Digital supplies; Imported and exported services are exempted

5% Reduced

Basic foodstuffs; petroleum oils; construction materials; IT, telecommunications and printing hardware and materials; and timepieces. Oil and petroleum are subject to quantity-based rates

Philippines VAT 15% Higher "Amusement tax" on night clubs, bars, cabarets etc

12% Standard All other taxable goods and services

0% Reduced Exports; international shipping; passenger transport; renewable energy

0% Zero

Sale or import of certain agricultural goods; passenger transport; domestic gas and water; financial services and insurance; medical supplies; real estate; newspapers and books

Singapore GST 7% Standard Standard Goods and Services Tax (GST) (since July 2007)

0% Zero Zero rating includes: international services; exports; supply and lease of certain aircraft; supply of certain tools

South Korea VAT 10% Standard All other taxable goods and services

0% Zero Exports and associated transport services; finance and insurance services; services rendered overseas; some business support services

Thailand VAT 7% Standard The standard VAT rate is 6.3% which together with a municipal component gives a total effective rate of 7%

0% Zero Exports

Vietnam VAT 15% Higher Luxury goods

10% Standard All other taxable goods and services

5% Reduced Basic foodstuffs; transport; medical equipment; agricultural production and services

0% Zero Overseas construction; exports and associated services; agricultural equipment; fertilizers; animal feed

Source: Avalara

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Valuation Maintain Overweight on the sector with JPFA as our top pick

The drop in livebird prices, which is reflected in the sector’s share price performance, is in line with our expectations. As such, we reiterate our Overweight call on the sector given the fall in share prices offers a good entry point as we believe the recovery in chicken prices and lower cost of raw materials will materialize in 2H21. The poultry sector’s share prices have dropped by 19% since early June.

We have BUY calls across the board. Despite having the cheapest valuation at -1.3 STD of its 3-year average, we prefer JPFA over MAIN because it is an integrator with less exposure to the feed business and has a higher downstream contribution.

Exhibit 16: Average gross revenues contribution (2019-2020)

Source: Company, BRI Danareksa Sekuritas

Exhibit 17: Poultry sector valuation

Valuation CPIN JPFA MAIN

TP 8,400 2,100 1,000 Current price* 6,400 1,655 695 Upside 31% 27% 44% Target STD 1.0 0.5 -0.5 Target valuation 16.9 6.9 6.3 Implied P/E 25.9 13.4 14.8 Current EV/EBITDA 12.9 5.8 5.3 Current STD -0.1 -0.4 -1.3

*as of 13 July 2021 Source: Bloomberg, Company, BRI Danareksa Sekuritas

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Expecting lower chicken prices in 2H21

We expect lower DOC and broiler prices in 2H21 as we expect the covid-19 pandemic to persist in 2H21. We expect a significant drop in livebird prices in 3Q21 on the back of the tightening in mobility restrictions and the Suro month which is expected to start on 10 August 2021. The continuation of culling programs remains crucial in our assumptions.

Despite the lower prices in 2H21, our FY21 DOC and broiler price assumptions remain higher compared to FY20 on the back of the lower base in 2H20 and higher base in 1H21. We expect FY21F DOC and broiler prices in West Java at IDR6,400/chick (+49% y-o-y) and IDR19,000/kg (+14% y-o-y), respectively.

Exhibit 18: General assumptions of chicken prices


Exhibit 19: Livebird prices during tightening of mobility restrictions


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Exhibit 20: Changes in our forecast (IDR bn)

Company 2020 2021

Actual Old New ∆

CPIN Revenue 42,519 49,709 48,832 -2%

EBITDA 6,234 7,243 8,130 12%

Net profits 3,842 4,599 5,316 16%

JPFA Revenue 36,965 42,581 44,805 5%

EBITDA 3,790 4,971 4,924 -1%

Net profits 1,136 1,874 1,843 -2%

MAIN Revenue 7,001 8,383 8,436 1% EBITDA 464 638 635 0%

Net profits (39) 164 224 37% Source: Company, BRI Danareksa Sekuritas

Exhibit 21: Poultry sector heatmap

CPIN JPFA MAIN Sector JCI Sector Vs

JCI

YTD -1% 15% -6% 3% 1% 2%

Last 3yr 74% -2% 0% 24% 1% 23%

Last 5yr 81% 48% -55% 25% 18% 7%

2020 2% -3% -26% -9% -5% -4%

2019 -8% -26% -26% -20% 2% -22%

2018 145% 75% 91% 104% -3% 106%

2017 -1% -8% -41% -17% 20% -37%

2016 20% 133% -15% 46% 15% 31%

2015 -31% -33% -28% -31% -12% -19%

2014 13% -21% -32% -13% 22% -36%

2013 -7% 0% 35% 10% -1% 11%

2012 73% 63% 145% 94% 13% 81%

2011 19% 31% 56% 36% 3% 32%


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www.danareksa.com See important disclosure at the back of this report 1

Equity Research Company Update

Friday,16 July 2021

Charoen Pokphand Indonesia(CPIN IJ) BUY

Maintain Continuing strong operational capabilities

Since early June CPIN’s share price has fallen by 10% and the stock is currently trading at slightly below its 5-year average EV/EBITDA. Given the favorable valuation and the expected good earnings this year backed by higher chicken prices, slightly offset by lower feed profitability, we maintain our BUY recommendation with a higher TP of IDR8,400 on higher FY21F EBITDA. Strong margins led by the breeding and commercial farming business. We expect strong margins in both breeding and commercial farming on the back of higher ASP of DOC and broilers. Especially for the breeding business, we forecast a 19.9% EBIT margin in FY21, a turnaround from a negative EBIT margin of 1.8% in FY20. In addition, we also expect the commercial farming EBIT margin to improve due to higher broiler prices. However, the improvement in CPIN`s overall EBIT margin will be slightly offset by a lower EBIT margin from poultry feed and the processed foods business which we expect to record lower margins due to higher raw material costs. FY21F EBITDA/net profits estimates tweaked by +12%/+16%. Our revised DOC, broilers, and raw material prices result in our FY21F EBITDA/net profits estimates increasing by 12%/16%, respectively, compared to our previous forecast. Our FY21F EBITDA estimate represents 30% y-o-y growth which is higher than its historical high base in FY18. Higher FY21F EBITDA led to a higher TP. Despite assigning a lower EV/EBITDA multiple of 16.9x from 17.8x previously to adjust for recent changes in the share price, our TP increases as we nudge up our FY21F EBITDA estimate by 12%. We assign a +1SD EV/EBITDA multiple on CPIN to take into account its strong operational capabilities amid the covid-19 pandemic and the good earnings momentum. Maintain BUY with a higher TP of IDR8,400. As per our expectation, CPIN`s share price has declined by 10% since early June led by the decline in livebird prices. Thus, we reiterate our BUY call as we believe the current share price is attractive given the recovery in broiler and DOC prices will provide good profitability. Our TP of IDR8,400 implies 25.9x FY21F P/E.

Last price (IDR) 6,400

Target Price (IDR) 8,400

Upside/Downside +31.3%

Previous Target Price (IDR) 7,800

Stock Statistics

Sector Poultry

Bloomberg Ticker CPIN IJ

No of Shrs (mn) 16,398

Mkt. Cap (IDRbn/USDmn) 104,947/7,248

Avg. daily T/O (IDRbn/USDmn) 50.1/3.5

Major shareholders (%)

PT Charoen Pokphand Indonesia Group 55.5

Estimated free float 44.5

EPS Consensus (IDR)

2021F 2022F 2023F

Danareksa 324.2 342.5 375.6

Consensus 274.4 305.5 337.4

Danareksa/Cons 18.1 12.1 11.3

CPIN relative to JCI Index

Source : Bloomberg

x Victor Stefano

(62-21) 5091 4100 ext.

[email protected]

Key Financials Year to 31 Dec 2019A 2020A 2021F 2022F 2023F

Revenue (IDRbn) 42,501 42,519 48,832 50,950 56,048 EBITDA (IDRbn) 6,022 6,234 8,130 8,563 9,290 EBITDA Growth (%) (17.3) 3.5 30.4 5.3 8.5 Net profit (IDRbn) 3,645 3,842 5,316 5,617 6,158 EPS (IDR) 222.3 234.3 324.2 342.5 375.6 EPS growth (%) (20.0) 5.4 38.3 5.7 9.6 BVPS (IDR) 1,273.5 1,422.9 1,647.5 1,852.4 2,082.4 DPS (IDR) 118.0 81.0 99.5 137.7 145.5 PER (x) 28.8 27.3 19.7 18.7 17.0 PBV (x) 5.0 4.5 3.9 3.5 3.1 Dividend yield (%) 1.8 1.3 1.6 2.2 2.3 EV/EBITDA (x) 17.9 17.1 12.9 12.1 11.0

Source : CPIN, Danareksa Estimates

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Friday,16 July 2021

Japfa Comfeed Indonesia(JPFA IJ) BUY

Maintain Driven by the breeding farm business

Since early June JPFA’s share price has fallen by 20% and the stock is currently trading at below its 5-year average EV/EBITDA. Given the favorable valuation and the expected good earnings this year backed by higher chicken prices, slightly offset by lower feed profitability, we maintain our BUY recommendation with a lower TP of IDR2,100 on a slightly lower valuation multiple. Strong top line growth but flat margins. We expect a 21% improvement in JPFA`s topline in FY21F driven by its breeding and commercial farming. Higher volume of DOC and broilers will boost this segment’s revenues growth, which will also be supported by higher expected ASP. Margins-wise, we forecast a gross margin at 20.2% in FY21 or flat compared to FY20’s gross margin of 20.1%. The flat gross margin mainly reflects the lower margin in the poultry feed business caused by higher raw material prices. FY21F EBITDA and net profits relatively unchanged. Our revised DOC, broiler, and raw material prices result in our FY21F EBITDA/net profits estimates to drop by only 1%/2%, respectively, compared to our previous forecast. Our FY21F EBITDA estimate represents 30% y-o-y growth which is higher than its historical high base in FY18. Strong contribution from the breeding farm segment. We expect JPFA’s DOC business to record strong performance driven by strong ASP and volume growth. Feed profitability, however, is expected to decline in FY21 given the expected lower margins caused by rising raw material costs. We also foresee declining profitability from SGF off a high base last year. Maintain BUY with a lower TP of IDR2,100. As per our expectation, JPFA`s share price has declined by 20% since early June led by the decline in livebird prices. Thus, we reiterate our BUY call as we believe the current share price is attractive given that recovery in broiler and DOC prices will provide sound profitability. Our TP is based on 6.9x EV/EBITDA (from 7.1x previously) which led to a lower TP of IDR2,100 (from IDR2,200) implying 13.4x FY21 P/E.

Last price (IDR) 1,645



Previous Target Price (IDR) 2,200

Stock Statistics

Sector Poultry

Bloomberg Ticker JPFA IJ


Mkt. Cap (IDRbn/USDmn) 18,770/1,296



Japfa Ltd. 51.0

KKR Jade Investments Pte Ltd. 5.0


EPS Consensus (IDR)

2021F 2022F 2023F

Danareksa 157.1 154.2 180.0

Consensus 181.9 196.7 202.3

Danareksa/Cons (13.6) (21.6) (11.0)

JPFA relative to JCI Index

Source : Bloomberg

x Victor Stefano

(62-21) 5091 4100 ext.

[email protected]


Revenue (IDRbn) 38,872 36,965 44,805 48,032 53,527 EBITDA (IDRbn) 4,115 3,790 4,924 5,195 5,740 EBITDA Growth (%) (7.2) (7.9) 29.9 5.5 10.5 Net profit (IDRbn) 1,675 1,136 1,843 1,808 2,111 EPS (IDR) 142.9 96.9 157.1 154.2 180.0 EPS growth (%) (16.4) (32.2) 62.2 (1.9) 16.7 BVPS (IDR) 956.9 910.6 1,046.6 1,158.3 1,296.6 DPS (IDR) 50.0 19.9 21.1 42.5 41.7 PER (x) 11.5 17.0 10.5 10.7 9.1 PBV (x) 1.7 1.8 1.6 1.4 1.3 Dividend yield (%) 3.0 1.2 1.3 2.6 2.5 EV/EBITDA (x) 6.7 6.8 5.3 4.9 4.2

Source : JPFA, Danareksa Estimates

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Friday,16 July 2021

Malindo Feedmill Indonesia(MAIN IJ) BUY

Upgrade Attractive valuation amid weak broiler prices

Since early June MAIN’s share price has dropped by 22% and the stock is currently trading at below 1SD of its 3-year average EV/EBITDA. Given the cheap valuation and the expected solid earnings this year backed by higher chicken prices, slightly offset by lower feed profitability, we upgrade our recommendation from HOLD to BUY for MAIN with a higher TP of IDR1,000. Higher earnings forecast due to changes in the fair value of biological assets. Our FY21 earnings forecast for MAIN is raised by 37% to IDR224bn as we include the changes in the fair value of biological assets in our numbers. We expect the gains to be above IDR100bn in FY21 due to the high DOC prices. This is a turnaround from IDR3bn of losses in FY20 as DOC prices were low due to the covid-19 pandemic. FY21F EBITDA relatively unchanged. Our higher revised DOC and broiler price estimates are offset by lower feed ASP and thus poultry feed margin. Our FY21F EBITDA estimate remains relatively unchanged at IDR635bn (from IDR638bn previously) which is 37% higher compared to the FY20 EBITDA. Our FY21F EBITDA estimate is slightly higher (3%) compared to the pre-pandemic level in FY19 but slightly lower (2%) compared to the high base in FY18. Expecting a huge improvement in processed food profitability. After changing its strategy to focus on more premium brands, MAIN`s processed food business is expected to see better profitability despite lower revenues. We expect the processed foods EBIT margin to improve to -13% in FY21 then breakeven in FY22 from -20% in FY20. Upgrade to BUY with a higher TP of IDR1,000. We upgrade our recommendation on MAIN from HOLD to BUY as the stock has plummeted by 22% since early June. We revise up our TP from IDR900 to IDR1,000 as we use a higher multiple valuation of -0.5SD from -1SD of its 3-year average previously while keeping our EBITDA estimate relatively unchanged. We believe MAIN’s current share price is attractive given that higher broiler and DOC prices will provide good profitability.

Last price (IDR) 670



Previous Target Price (IDR) 900

Stock Statistics

Sector Poultry

Bloomberg Ticker MAIN IJ


Mkt. Cap (IDRbn/USDmn) 1,500/104



Dragon Amity Pte. Ltd. 57.3

Estimate Free Float 42.7


EPS Consensus (IDR)

2021F 2022F 2023F

Danareksa 100.2 87.1 123.5

Consensus 96.1 95.1 126.4

Danareksa/Cons 4.3 (8.4) (2.2)

MAIN relative to JCI Index

Source : Bloomberg

x Victor Stefano

(62-21) 5091 4100 ext.

[email protected]


Revenue (IDRbn) 7,455 7,001 8,436 8,788 9,781 EBITDA (IDRbn) 617 464 635 698 807 EBITDA Growth (%) (4.3) (24.8) 36.8 9.8 15.6 Net profit (IDRbn) 152 (39) 224 195 277 EPS (IDR) 68.1 (17.3) 100.2 87.1 123.5 EPS growth (%) (46.5) (125.5) (677.4) (13.0) 41.8 BVPS (IDR) 943.9 959.2 1,059.4 1,126.5 1,232.6 DPS (IDR) 0.0 0.0 0.0 0.0 0.0 PER (x) 9.8 n/m 6.7 7.7 5.4 PBV (x) 0.7 0.7 0.6 0.6 0.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 EV/EBITDA (x) 5.4 7.1 5.2 4.7 4.0

Source : MAIN, Danareksa Estimates

Documents

OVERWEIGHT Poultry