Bareksa.com - Buana Capital reiterates sell recommendation on PT Japfa Comfeed Indonesia Tbk (JPFA) with target price of Rp1.043, implying 9.1x PER 2015. The stock currently trades at 10.1x PER 2015. The background for these recomendation is depreciating IDR which causes an increase in operating costs and interest costs.

Depreciating IDR negates the benefit from lower raw materials prices.

Global soybean and corn prices fell to their lowest level in three months. As of June 2014, soybean price reached $14.82/bushel (-0.7% MoM, - 5.2% YoY), and corn prices reached $4.62/bushel (-0.6% MoM, -32% YoY). However, IDR depreciated further, and translated imported soybean price to Rp4,798 (+0.5% MoM, +13% YoY), and imported corn price came up to Rp2,735/kg (+2% MoM, -17% YoY).

Exhibit 1. Global Corn Price vs Imported Corn Price

Source : Buana Research

Exhibit 2. Global Soybean Price vs Imported Soybean Price

Source : Buana Research

USD denominated debt to stay.

Management talked about extending the maturity on most of JPFA USD denominated debts. We estimate USD debts will stay the same at ~35% of total debt through 2015. As IDR depreciated by 21% YtD to Rp11,979 on June 19, 2014, we see forex risk as a negative catalyst to profitability. Each Rp100 of IDR weakness translates to Rp17,3bn of loss on foreign exposure.

Exhibit 3. JPFA Debt Structure

Source : Company Report, Buana Research

Further DOC supply cut.

On 16 June’14, the government has cut DOC supply by another 7.5%, amounting to 22.5% in total. This is expected to stabilize DOC price after Ramadhan period. We forecast FY14F DOC ASP will reach Rp4,206 (-3.5% YoY) on the back of weaker 1Q prices.

Exhibit 4. DOC Price Volatility

Source : Pinsar, Buana Research

Buana Capital adjusts 2015 earnings by -4% on lower DOC and broiler ASP, a still-high interestbearing debts, weak IDR, and higher raw materials prices. With a WACC of 16%, and 2,5% terminal growth, they reiterate SELL at 2015 price of Rp1.043 (-20% than previous), which implies 9.1x 2015 PER. At current prices of Rp1.160, JPFA trades at 10x 2015 PER.

Exhibit 5. Financial Highlight

*Adityo Mahendra Yogiswara is equity analyst of PT Buana Capital. This article is part of the Equity Research of PT Buana Capital