August 2, 2019
ASF and increased feed costs impact Japfa's Q2 profit
SGX-listed Japfa's Q2 net profit plummeted, on a large fair-value loss for biological assets, compared with the previous year's gain, The Business Times reported.
Profits plunged 83.1% to US$4.99 million for the three months to June 30, down from US$29.6 million the year before, according to unaudited results released on Tuesday.
Even as revenue improved by 8.2% to US$975 million on more animal feed sales —chicken feed in Indonesia, India and Myanmar, and fish feed in Indonesia - and a stronger dairy segment, the rise was offset by a higher cost of sales.
The loss in fair value of biological assets amounted to US$10.1 million, on lower swine prices in Vietnam and a higher feed cost that was used in the valuation of future income flows for Japfa's dairy cattle herd in China (though raw milk prices increased).
Japfa's "other animal protein" division saw an operating loss in the quarter due to a reduced swine fattening average selling price in Vietnam, while consumer food, faced with competition in Indonesia, was also in the red.
Indonesian chicken margins thinned on what Japfa attributed to a "supply and demand imbalance" that hurt broiler average selling prices.
Tan Yong Nang, chief executive officer of Japfa, reiterated in a statement: "The agri-food business is subject to cyclicality and other external factors that are beyond our control.
This is exactly what happened in this quarter, with our profitability affected by low (average selling price) in two of our core business pillars."
Japfa warned in its outlook statement that Vietnam is in the throes of an African swine fever outbreak, which has hurt the group's financial performance, as strict biosecurity measures have raised the cost of production while sales volume of feed is expected to fall on the pre-emptive culling of livestock.
In addition, profitability of poultry-related operations in Myanmar could suffer in the short term on increased competitive pressures and local corn prices.
However, Japfa added that the emerging markets where it operates "continue to witness growing animal protein consumption", which bodes well for medium- to long-term growth.