Japfa Ltd (SGX:UD2) is an industrial agri-food company that produces and sells dairy products, protein staples and packaged food products in Asia. Here are some things investors should know about its business.
What it does?
Headquartered in Singapore, Japfa operates across the whole agri-food business chain. Firstly, the company provides upstream solutions to animal breeding by providing animal feed production. The company also engages in dairy and beef cattle, poultry, swine and aquaculture breeding.
Furthermore, the company operates dairy milking plants and commercial livestock fattening farms, in what is considered the midstream business.
At the downstream side of its business, Japfa processes its dairy and consumer products. They own recognised dairy product and consumer food brands including Greenfields (dairy product brand in China and Indonesia) and So Good Food brand (consumer food in Indonesia and Vietnam).
Breaking down its business
The group divides its business into four main segments. This includes PT Japfa Tbk, which Japfra owns a 51% stake in. PT Japfa Tbk carries out protein operations. The group also has a separate animal protein, dairy, and consumer food segments.
Source: Japfa Ltd 2017 Annual Report
As you can see from the chart above, the majority of Japfa’s revenue comes from its 51% stake in Japfa TBK. Its animal protein operations contributed US$475 billion in revenue, with dairy and consumer food contributing a smaller percentage of its sales.
Top-line growth in 2017 but regulations have impacted the bottom-line
The group recorded a 5.1% increase in revenue in 2017 to US$3.19 billion but still suffered a whopping 98.9% drop in profit after tax and minority interests (PATMI). This was largely due to China’s swine import restrictions that have curtailed market demand in Vietnam, driving average selling prices down to levels even below cost. Consequently, it recorded a loss in its animal protein segment of US$37.5 billion, a reversal from US$37.2 billion in profit in 2016.
Headwinds in its consumer food business also affected the company’s profitability in 2017, as losses after tax widened to US$20 billion from US$6 billion in 2016. Heavy competition from other market players and higher raw material costs impacted this segment.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.