We attended a site visit organised by Japfa Ltd (“Japfa”) to its Dairy Farm 3 and 4 in Dongying City, Shandong Province, China on Thursday 24th Aug-17. We had the privilege of understanding Japfa’s Dairy operations with the Group’s CFO and Head of Dairy, who shared with us their market insights and technical knowledge.
Key takeaways from the site visit
Japfa is undervalued relative to the peer average EV/EBITDA and P/E multiples. Company is trading at c.43% discount to its peers’ EV/EBITDA and c.23% discount to its peers’ PER.
No stock rating or price target provided, as we do not have coverage on Japfa Ltd.
Dairy Business Overview
Japfa’s dairy operations are mainly in China and Indonesia. It owns 7 world-class fully operational dairy farms and a processing plant, that are designed, equipped and meet international standards in productivity and biosecurity.
Figure 1: Japfa’s business model at a glance
Figure 2: Dairy’s regional footprint
Source: Company website
Ramping up capacity to capitalise the increasing demand for dairy products in China
Structural growth in consumption of milk and dairy products, driven by growing consumer affluence, technology advancement
Source: OECD/FAO (2016), “OECD-FAO Agricultural Outlook”, OECD Agriculture statistics (database).
Figure 3 & 4: China’s Dairy Consumption Pattern in 2016
Figure 5-8: China’s Milk and Dairy Products 2015-2025 Outlook