October 23, 2024
How the Stars Align for JPFA

Market Commentary
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The National Food Agency (Bapanas) revealed that in 2023, the average Indonesian consumed approximately 7.46 kilograms of broiler chicken per capita annually. This figure has steadily increased, chicken consumption was recorded at 5.7 kilograms per capita per year in 2019. In 2023, the average consumption of chicken in Indonesia rose by 4.3% YoY, compared to 2022's figure of 7.15 kilograms per capita per year.

Additionally, Bapanas noted that the total demand for broiler chicken meat for household consumption in 2023 amounted to 2.08 million tons annually, a 5.4% YoY increase. On average, Indonesians derived 76 kilocalories per capita per day from chicken meat consumption, which accounts for 3.6% of the total daily calorie requirement of 2,088 kilocalories per capita.
 
Indonesia Chicken Consumption per Capita
source: Badan Pangan Nasional
 

This constant rising consumption of chicken showed that business opportunity on the sector is likely to remain attractive as demand is growing from time to time. However, one particular stock that we believe stands out above its peers is JPFA.

We recently initiate coverage on JPFA with a BUY recommendation based on three primary factors: (1) the presence of government incentives aimed at mitigating oversupply and stabilizing poultry prices; (2) government programs designed to stimulate demand and increase poultry consumption, which are expected to drive growth in JPFA's poultry division; and (3) JPFA's valuation which currently trades at a discount compared to its main competitor, CPIN, presenting an attractive investment opportunity. Following a period of less favorable performance, recent government initiatives enhance JPFA's potential, making it an appealing option for investors.

 

Several government policy interventions to stabilize th poultry markets are: (1) reducing the GPS import quota to 530K livebirds from 630K in 2022. This cutback was implemented to lower production levels and prevent an oversupply in the market; (2) the government has implemented culling programs in 2023 for Parent Stock (PS), Final 2 Stock (FS), and Day-Old Chicks (DOC). This initiative aims to address the oversupply issue and improve overall market conditions within the poultry industry; (3) Officially implementing reference prices for poultry commodities since 2024 to improve prices in the market and stabilize volatility that can be detrimental to players; (4) Initiating social assistance programs to significantly boost demand and consumption of poultry in Indonesia, such as distributing poultry meat to 1.4mn families at risk of stunting starting in early 2024, alongside the free lunch program plan under the new regime.
 

Despite its strong prospects, JPFA continues to trade at a forward PE of 7.9x, trading well below its 5 years mean PE and on a remarkable 70% discount to its main peer, CPIN
 
Bloomberg's JPFA Blended Forward PE


Therefore, we reiterate our BUY call with a target price of Rp1,910, implying a 2025F PE of 10.2x.
 

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