• Japfa is likely on the verge of a big announcement. Let's take a look at how we got here. a) In March 2024, Bloomberg reported on a possible privatisation of the company. See: Top Asia Poultry Firm Japfa Owners Said to Mull Go Private Deal. Japfa's response is here (which didn't outright say it wasn't in the works). b) Then in Aug 2024, Japfa made an equal access offer at 35.5 cents/share. As it turned out, Japfa managed to purchase 76.3% of the maximum number of shares under the equal access offer. The equal access offer is reminiscent of the offer that Best World International made twice in Jan and April 2022 before it became privatised in 2024. c) The most telling signal came last week: Japfa announced that its controlling shareholders are in "advanced discussions regarding a possible transaction involving the company’s shares".  Japfa is mainly into poultry breeding and farming in Indonesia. Photo: CompanyHeadquartered in Singapore, Japfa is one of the largest poultry producers in Indonesia and in the region. (Japfa also has a smaller swine business, mainly in Vietnam). • Since that Bloomberg scoop 1 year ago, Japfa stock has run from 22 cents to 53 cents, which is a massive 140%. One may wonder why didn't the controlling shareholders make a quick move to privatise the company when the stock was much cheaper? DBS Vickers has just offered its informed views on that -- and it gave its take on how a privatisation offer might play out. It's not necessarily a plain vanilla route. • Read more below .... |
Excerpts from DBS Vickers report
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Potential privatisation on the cards
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What’s New
Japfa Limited (JAPFA) announced that its controlling shareholder is in advanced discussions regarding a possible transaction involving the company’s shares.
Currently, its controlling shareholder, the Santosa family, holds 78% of outstanding shares post the off market share buyback scheme.
At current share price of SGD0.475, the remaining shares held by the public is valued at ~SGD200mn.
We believe a potential privatisation could be on the cards.
A potential privatisation deal was first rumoured back in Mar-24 and reported by Bloomberg: Top Asia Poultry Firm Japfa Owners Said to Mull Go Private Deal.
The share price has since doubled from SGD0.24 then on improving fundamentals of the business.
Our views
Japfa trades at below 5x PE on FY25F earnings and below book at ~0.8x PB ratio. Photo: CompanyWe believe investors would likely be puzzled as to why the family choose to consider privatisation now when the share price has appreciated substantially.
Our view is that the family could have felt that the company continues to be undervalued given the turnaround in the business, trading at below 5x PE on FY25F earnings and below book at ~0.8x PB ratio.
In addition, the falling interest rate environment may have opened more optimal financing options to structure a privatisation.
We envision multiple routes to privatisation including a partnership with PE firm or cash combined with structure like issuance of redeemable preference shares (similar to Silverlake Axis where the offer takeout price is at current traded price with a redeemable share due in 5 years at ~50% of traded price).
| Regardless of whether a privatisation materialises, we remain bullish on the company given improving poultry market dynamics in Indonesia (More details here: Riding the broiler boom), brighter consumer prospects in Vietnam and falling feed input costs. Maintain BUY; TP SGD0.56. |
