Japfa

Japfa's headline 1Q16 net profit more than tripled to US$23.4m (+234% y/y), on a US$22.6m positive turnaround in FX adjustments, and operational efficiencies.

Core earnings excluding fair value changes, one-offs and FX impact, surged two-fold to US$19.8m (+107%).

Revenue notched up 6% to US$717.7m on higher sales volume across all segments. Animal protein business in Indonesia (+4% to $466.2m) saw firmer pricing amid absence of oversupply conditions in the poultry market, while other markets (+7.9% to $136.7m) in India, Vietnam, and Myanmar enjoyed steady growth.

Dairy sales grew 15.8% to US$69m on higher number of milk cows in China (+20%) and higher yields (+2.7%), overshadowing softer raw milk prices (-10%).

As for consumer food, sales increased 11.4% from Indonesian consumers, as the business in Vietnam is still building up.

Gross and operating margin expanded to 20.4% (4.5ppt) and 7.7% (+3ppt), predominantly attributable to a marked profitability improvement in the Indonesian chicken operations.

Bottom line was boosted by a positive turnaround in FX adjustments, and lower finance costs, but partially negated by fair value losses of biological assets.

Despite the strong quarterly earnings, investors should take caution on its negative operating cash flow of US$17m. Cash and cash equivalents have been falling to US$142.7m (-38% y/y, -3.6% q/q).

Looking ahead, management remains cautious of economic slowdown and FX volatility in emerging markets, and also wary of the seasonality and cyclical nature of the poultry industry.

Japfa is currently trading at 8.5x FY16e P/E.