Sunday, August 10, 2014

Japfa Ltd

Short Summary:
Japfa is a leading agri-food company that produces multiple protein foods, with operations in five high growth emerging Asian markets. Japfa has, over 40 years, developed core competencies across the agri-food value chain, including animal feed production, animal breeding, livestock fattening and consumer food. Japfa is a market leader across multiple classes of protein foods, with an emphasis on milk, poultry and beef, complemented by growing businesses in swine and aquaculture.

The Deal:
Offering Price: S$0.80
The Offering: 248,000,000 Shares (Include 16,800,000 Offering Shares to Singapore Public)
Cornerstone Investors:
928,368,240 (52.61%) Rangi Management Limited.
282,527,085 (16.01%) Morze International Limited.
Forecast Dividend Yield:
2014: 0.00%
2015: 0.00%
2016: 0.00%
*Based on issue price of $0.80, 1,764,670,391 units after IPO.
Dividend Policy:
We do not have a fixed dividend policy. Our Company will pay dividends, if any, out of our profits as permitted under Singapore law. Dividends will be declared and paid in Singapore dollars. The Board of Directors of our Company has discretion to recommend payment of dividends. Any profits our Company declares as dividends will not be available to be reinvested in our operations. We cannot assure you that our Company will declare or pay any dividends, and you should not anticipate receiving dividends with respect to Shares that you purchase and/or subscribe in the Offering.
- Our industrialized approach to agri-food production and our vertical integration drive our leadership positions and growth strategies.
- We operate in five large, high-growth emerging Asian markets where protein consumption is low and expected to increase.
- We operate our business in multiple protein segments with leading market positions.
- We have established a leading premium dairy business in China and Indonesia, which is poised for substantial growth.
- We have created leading downstream consumer food brands, which we expect to be a key driver for future growth.
Future Strategy
- Expand our dairy business in China through the continued replication of our successful business model.
- Continue to grow and enhance the profitability of our core poultry business in Indonesia.
- Expand our animal protein business in our target markets.
- Build on our high-growth consumer food brands.
- Outbreaks of livestock diseases could have a material adverse effect on our business, financial condition and results of operations.
- Operate one dairy farm in Indonesia which supplies all of the premium raw milk used as the raw material for the dairy products produced under our “Greenfields” brand. Any outbreak of cattle disease at this farm or any other stoppage of operations at this farm could materially and adversely affect our business, financial condition and/or results of operations.
- Exchange rate fluctuations and exchange controls and policies may materially adversely affect our business, financial condition, results of operations and/or prospects and the foreign currency value of our Shares and any future dividend distributions.
- Our business is dependent upon the price and availability of corn and other feed raw materials.
- We have been and could in the future be subject to restrictive governmental measures, such as price or volume controls.
- Dongying Japfa (in respect of the beef feedlot in the PRC) has not submitted its environmental impact assessment report. Dongying Japfa had commenced construction at the beef feedlot prior to obtaining approval for its environmental impact assessment reports. Four dairy farms and the beef feedlot began operations prior to obtaining all necessary approvals and opinions. Under the relevant regulations, the competent authorities may order us to suspend our production and may also impose penalties of up to RMB100,000 per farm or feedlot for commencing operations without undergoing inspections. Pollution discharge permits have also not been applied for and under the relevant regulations, orders may be made for corrective measures to be undertaken within a specified time limit and for a fine of up to RMB50,000 per farm or feedlot. (My opinion: High risk as they are in violation of PRC regulation)
- As at the Latest Practicable Date, 42 of the 64 swine and poultry farms operated by Japfa Comfeed Vietnam Limited Company (“JCVN”), Japfa Comfeed Long An Limited Company (“JCLA”) and Japfa Comfeed Binh Thuan Limited Company (“JCBT”) have been leased from lessors who, in breach of their obligations under the respective leases, have not obtained all environmental licenses and permissions necessary for these farming activities. In addition, JCLA’s feedmill has not obtained a license to discharge waste. The lack of such licenses and permissions may result in a suspension of the operations of the said farms. (My opinion: High risk as they are in violation of Vietnam regulation)
- The investment certificates of JCVN, JCLA and JCBT have not been updated to reflect the expanded scope of business of these companies. The authorities also have the power to require JCVN, JCLA and/or JCBT to cease such non-compliance, which may result in these farm leases being terminated, resulting in a material adverse effect on our business, financial condition, results of operations and/or prospects. (My opinion: High risk as they are in violation of Vietnam regulation)
- Our dairy business is influenced by a number of factors, some of which are beyond our control.
- High gearing of 50.45%
Finally, something different on the Singapore IPO list other than the usual REITS, Business Trust and O&G related companies. In this entry, we are looking at an IPO company headquartered in Singapore doing agri-food related activities that has control of its operation all the way from up-stream of food sourcing and breeding to the down-stream of final product food processing. Personally, I do not like this kind of business as their profitability are subject to the home country Forex exchange, outbreak of disease and government policy, which are usually extremely volatile and something that's beyond the company control. A deeper look at the prospectus reveals that the company regulatory compliance portion are very lacking and I am extremely concern and not comfortable with that. The company operations are big and "IF" the government strikes....I do not dare to think further. Outbreak of disease is also another issue. A huge part of the company operation is based in Indonesia. If an animal disease should strike there, the company will suffer significant loss. Lastly, not to mention that this year, the profit has dipped even though their revenue has increased, which I suspected partly is due to the increase in cost out-stripping the increase in revenue. Bearing all these, I will be staying far far away from this IPO. I do not want to deal with a company that has a huge potential regulatory issue with the government.
Some useful information:
[08 Aug 2014], [9.00 a.m.] : Opening date and time for the Public Offer.
[13 Aug 2014], [12,00 p.m.] : Closing date and time for the Public Offer.
[14 Aug 2014]: Balloting of applications under the Public Offer, if necessary.
[15 Aug 2014], [9,00 a.m.]: Commence trading on a “ready” basis.
Rating for investment: 0.0/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.

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