SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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What drives Japfa CEO Tan Yong Nang out of bed every morning is the awareness that he is contributing – one way or the other – to the fight against hunger and malnutrition in Asia.

A 2019 report by UN agencies found that more than 20% of the region’s population – estimated at 3.5 billion – is grappling with moderate or severe lack of access to food.

“Japfa has a mission to feed emerging Asia,” Tan noted. “With China, India, Myanmar, Indonesia and Vietnam accounting for more than 40% of the global population, I’m glad to be able to contribute to the well-being of consumers, and play a small part in the efforts to end regional hunger.”

As a leading, pan-Asian industrialised agri-food company, SGX-listed Japfa Ltd provides consumers with safe and affordable animal proteins, ranging from poultry and beef, to pork, aquaculture and dairy products.

Headquartered in Singapore, it employs over 40,000 people across an integrated network of modern farming, processing and distribution facilities in Indonesia, Vietnam, Myanmar, India and China.

Prior to listing on SGX in August 2014, although diversified across different markets and proteins, Japfa was a poultry-focused, Indonesia-centric business. “Our ambition then was to further expand and strengthen a business that already spanned multiple markets and pillars, offering a range of animal proteins,” said Tan.

Since its listing, Japfa has successfully leveraged its diversification strategy by replicating its vertically integrated business model, which spans animal feed production and breeding farms in the upstream industry, milking and fattening farms in the mid-stream segment, as well as processing and distribution operations, which constitute the downstream sector.

The Group’s first pillar is poultry in Indonesia, where it continues to maintain a leadership position through its Indonesia-listed subsidiary, PT Japfa Comfeed Indonesia Tbk – one of the two largest producers of poultry in the country with robust market share and economies of scale. 
The second core pillar is its dairy operations in China, where Japfa is one of the leading producers of premium raw milk, with one of the highest milk yields in the market. In April 2020, Meiji Co Ltd agreed to buy 25% of Japfa subsidiary AustAsia Investment Holdings Pte Ltd for US$254.4 million in cash, further cementing Japfa’s position as an independent raw milk producer in China. The Group’s third pillar is its swine business in Vietnam.

Additionally, Japfa has poultry operations in Vietnam, India and Myanmar, as well as aquaculture and beef operations in Indonesia. It leverages on its quality raw materials to produce premium, mass-market dairy products under its Greenfields brand sold in markets across Asia, including Singapore, as well as packaged foods under its So Good brand, available in Indonesia.

Core Competencies

“To qualify as a pillar, a business should reach at least a US$1 billion valuation,” said Tan, who spent his early career in various roles ranging from statistician and economist, to investment analyst and fund manager.

“We have already achieved that with PT Japfa Comfeed Indonesia. The recent Meiji transaction in China is another indication of such valuation for our dairy business, and more are in the pipeline.”

That’s how Japfa will grow in size and scale, he added. “By embracing an integrated, industrialised approach to farming and food production across the entire value chain, and institutionalising each business division so as to gain leadership in market share, technology and expertise.”

This standardised approach also allows the Group to become one of the lowest cost producers in the industry. “Since agri-food producers have no control over raw material prices, the only way to survive and thrive, is to ensure your operating costs are the lowest among your competitors.”

“Don’t forget – in the land of the blind, the one-eyed man is king,” he quipped.

The Group’s diversification is built across its core competencies. “What do milk operations in China, poultry breeding in Indonesia, and pig farming in Vietnam have in common? The dynamics of all three are very different, but the underlying core competency is the same, which is livestock breeding,” Tan pointed out.

“We use superior breeds, and adopt a sophisticated approach to animal husbandry, animal health, nutrition and welfare – all of which reinforce the quality of our products and achieve high production yields.”

The Group also places a strong emphasis on biosecurity with stringent operating procedures, and has forged strategic alliances with global leaders in breeding research.

“If you have productive and healthy breeders, that’s more than half the battle won,” he noted. “And quality breeding operations are the linchpin of any expansion into new revenue streams, such as beef operations or aquaculture.”

However, the agri-food business will inevitably be subject to cycles, which in turn affect sales and profits. These cycles are determined by factors that include seasonality, government policies, as well as macroeconomic drivers, which impact consumer spending.

“Our diversification across five proteins and five countries cushions us against cyclicality in any one market or protein group,” he added.

And given the growing affluence of Japfa’s target middle- and lower-income consumer groups, it expects animal protein consumption to continue climbing.

According to USDA-Economic Research Service, Southeast Asia’s expanding populations, rapid urbanisation and growing disposable incomes are contributing to increased meat consumption, particularly poultry and pork.

The region’s poultry output surged 56% over the last decade to 9.2 million metric tonnes in 2018, and is forecast to reach 12.3 million metric tonnes by 2028. Likewise, pork production grew 23% between 2009 and 2018, and is projected to rise another 21% by 2028.

China’s per capita milk consumption doubled to 36 kg in 2018 from 18 kg in 2007, but it still stands at less than one-third the global average. The country’s per capita dairy intake will continue to rise, particularly in third- and fourth-tier cities, USDA-Economic Research Service data showed.

Stormy Seas

Looking back on his 13 years within the Group, the last six of which was at the helm as CEO, Tan gets a sense of satisfaction from witnessing Japfa’s steady growth – not only in terms of financial strength, but also in the Group’s ability to navigate choppy waters.

“Since our IPO, revenues have expanded by nearly a third to US$3.9 billion, while our EBITDA has nearly doubled to almost US$500 million,” he pointed out, referring to the Group’s earnings before interest, tax, depreciation and amortisation.

Through its diversification, Japfa has reduced earnings volatility. For the year ended 31 December 2019, it reported profit after tax and minority interests (PATMI) of US$120.0 million, up 19.5% year-over-year, as revenue gained 10.1% to US$3.9 billion.

The Group has also learnt key lessons from the oversupply in the Indonesian poultry industry in 2014 and 2015, as well as the African Swine Fever (ASF) outbreak in Vietnam in 2019. Despite these major down-cycles, Japfa has delivered healthy EBITDA every year.

“We’ve emerged stronger from all these challenges. Such events – if we are adaptive and able to respond quickly with the right measures – can give us a lead over competitors, and help us build on the foundation for our future.”

For instance, thanks to Japfa’s strict biosecurity and farm management protocols, it was able to contain the adverse impact of the ASF and capitalise on the rebound of swine fattening prices in Vietnam in the last quarter of 2019.

“Our strategy of building a swine breeding pyramid gave us the opportunity to replenish our swine breeding stock more quickly than the competition,” Tan recalled. “As a result, we were able to boost our share of the swine fattening market amidst shrinking supplies in the country.”

Nevertheless, one challenge the 59-year-old is keeping a close eye on is none other than COVID-19. 

“As Japfa provides an essential service by supplying staple proteins, largely to the domestic markets in which they are produced, our day-to-day operations have not, thus far, been materially impacted by the lockdowns,” Tan noted.

In particular, Japfa has seen a recovery in demand for raw milk in China. “With the general shortage of raw milk in the country, and as an independent raw milk producer, we’re poised to benefit,” he added.

In Vietnam, pork demand remains relatively stable after the substantial fall in pork supply post-ASF, due to culling. However, the situation in Indonesia remains fluid – the country’s partial lockdowns have reduced consumer spending and impacted poultry demand, leading to a continued decline in broiler prices.  

“As this pandemic is an unprecedented event, the ultimate impact cannot be estimated with any certainty. Against this backdrop, we’re focused on reducing costs and remaining efficient, as well as adjusting our investments and deploying our resources appropriately,” he added.

When Tan isn’t managing Japfa’s operations, he can be found with his son, 20, and daughter, 25. “I talk to them, and sometimes, I lecture them. But after a while, they get tired of hearing my voice, and all conversation grinds to a halt,” he laughed.

But one thing is clear: His children are encouraged to live by a code of ethics. “I’ve always taught them to be a good person, to treat others with respect, show empathy, and have integrity.”

“That’s how you develop and maintain your moral compass in this life.” Japfa Ltd

Headquartered in Singapore, Japfa is a leading vertically integrated agri-food company listed on SGX Mainboard since 2014. Established in 1971, the Group has grown into one of Asia’s leading low-cost producers of protein staples, including poultry, beef, dairy, as well as protein-based consumer products across fast-growing emerging Asian economies, such as Indonesia, China, India, Myanmar and Vietnam. Japfa embraces an integrated industrial approach to livestock and food production across the value chain. Its vertically integrated business model spans Feed and Breeding (upstream), Milking and Fattening (midstream), and Processing and Distribution of consumer products (downstream).

The company website is: <a href="http://www.japfa.com">www.japfa.com</a>. 
Click <a href="https://www2.sgx.com/securities/equities/UD2">here</a> for the company's StockFacts page. 
For the quarter ended 31 March 2020 financial results, click <a href="https://links.sgx.com/1.0.0/corporate-announcements/PAI5U4SU4WTM27BG/Japfa%20Ltd%20Press%20Release%201Q2020.pdf">here</a>. About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations. 
For previous editions of kopi-C: the Company brew, please click <a href="http://edm.sgx.com/a/hBd-CspB86%24MfB90noBAABR54ZH/link10">here</a>.   
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to <a href="jennifer.t@sgx.com">jennifer.t@sgx.com</a>.

 
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    japfa


What drives Japfa CEO Tan Yong Nang out of bed every morning is the awareness that he is contributing – one way or the other – to the fight against hunger and malnutrition in Asia.

A 2019 report by UN agencies found that more than 20% of the region’s population – estimated at 3.5 billion – is grappling with moderate or severe lack of access to food.

“Japfa has a mission to feed emerging Asia,” Tan noted. “With China, India, Myanmar, Indonesia and Vietnam accounting for more than 40% of the global population, I’m glad to be able to contribute to the well-being of consumers, and play a small part in the efforts to end regional hunger.”

As a leading, pan-Asian industrialised agri-food company, SGX-listed Japfa Ltd provides consumers with safe and affordable animal proteins, ranging from poultry and beef, to pork, aquaculture and dairy products.

Headquartered in Singapore, it employs over 40,000 people across an integrated network of modern farming, processing and distribution facilities in Indonesia, Vietnam, Myanmar, India and China.

Prior to listing on SGX in August 2014, although diversified across different markets and proteins, Japfa was a poultry-focused, Indonesia-centric business. “Our ambition then was to further expand and strengthen a business that already spanned multiple markets and pillars, offering a range of animal proteins,” said Tan.

Since its listing, Japfa has successfully leveraged its diversification strategy by replicating its vertically integrated business model, which spans animal feed production and breeding farms in the upstream industry, milking and fattening farms in the mid-stream segment, as well as processing and distribution operations, which constitute the downstream sector.

The Group’s first pillar is poultry in Indonesia, where it continues to maintain a leadership position through its Indonesia-listed subsidiary, PT Japfa Comfeed Indonesia Tbk – one of the two largest producers of poultry in the country with robust market share and economies of scale.  
The second core pillar is its dairy operations in China, where Japfa is one of the leading producers of premium raw milk, with one of the highest milk yields in the market. In April 2020, Meiji Co Ltd agreed to buy 25% of Japfa subsidiary AustAsia Investment Holdings Pte Ltd for US$254.4 million in cash, further cementing Japfa’s position as an independent raw milk producer in China. The Group’s third pillar is its swine business in Vietnam.

Additionally, Japfa has poultry operations in Vietnam, India and Myanmar, as well as aquaculture and beef operations in Indonesia. It leverages on its quality raw materials to produce premium, mass-market dairy products under its Greenfields brand sold in markets across Asia, including Singapore, as well as packaged foods under its So Good brand, available in Indonesia.

Core Competencies

“To qualify as a pillar, a business should reach at least a US$1 billion valuation,” said Tan, who spent his early career in various roles ranging from statistician and economist, to investment analyst and fund manager.

“We have already achieved that with PT Japfa Comfeed Indonesia. The recent Meiji transaction in China is another indication of such valuation for our dairy business, and more are in the pipeline.”

That’s how Japfa will grow in size and scale, he added. “By embracing an integrated, industrialised approach to farming and food production across the entire value chain, and institutionalising each business division so as to gain leadership in market share, technology and expertise.”

This standardised approach also allows the Group to become one of the lowest cost producers in the industry. “Since agri-food producers have no control over raw material prices, the only way to survive and thrive, is to ensure your operating costs are the lowest among your competitors.”

“Don’t forget – in the land of the blind, the one-eyed man is king,” he quipped.

The Group’s diversification is built across its core competencies. “What do milk operations in China, poultry breeding in Indonesia, and pig farming in Vietnam have in common? The dynamics of all three are very different, but the underlying core competency is the same, which is livestock breeding,” Tan pointed out.

“We use superior breeds, and adopt a sophisticated approach to animal husbandry, animal health, nutrition and welfare – all of which reinforce the quality of our products and achieve high production yields.”

The Group also places a strong emphasis on biosecurity with stringent operating procedures, and has forged strategic alliances with global leaders in breeding research.

“If you have productive and healthy breeders, that’s more than half the battle won,” he noted. “And quality breeding operations are the linchpin of any expansion into new revenue streams, such as beef operations or aquaculture.”

However, the agri-food business will inevitably be subject to cycles, which in turn affect sales and profits. These cycles are determined by factors that include seasonality, government policies, as well as macroeconomic drivers, which impact consumer spending.

“Our diversification across five proteins and five countries cushions us against cyclicality in any one market or protein group,” he added.

And given the growing affluence of Japfa’s target middle- and lower-income consumer groups, it expects animal protein consumption to continue climbing.

According to USDA-Economic Research Service, Southeast Asia’s expanding populations, rapid urbanisation and growing disposable incomes are contributing to increased meat consumption, particularly poultry and pork.

The region’s poultry output surged 56% over the last decade to 9.2 million metric tonnes in 2018, and is forecast to reach 12.3 million metric tonnes by 2028. Likewise, pork production grew 23% between 2009 and 2018, and is projected to rise another 21% by 2028.

China’s per capita milk consumption doubled to 36 kg in 2018 from 18 kg in 2007, but it still stands at less than one-third the global average. The country’s per capita dairy intake will continue to rise, particularly in third- and fourth-tier cities, USDA-Economic Research Service data showed.

Stormy Seas

Looking back on his 13 years within the Group, the last six of which was at the helm as CEO, Tan gets a sense of satisfaction from witnessing Japfa’s steady growth – not only in terms of financial strength, but also in the Group’s ability to navigate choppy waters.

“Since our IPO, revenues have expanded by nearly a third to US$3.9 billion, while our EBITDA has nearly doubled to almost US$500 million,” he pointed out, referring to the Group’s earnings before interest, tax, depreciation and amortisation.

Through its diversification, Japfa has reduced earnings volatility. For the year ended 31 December 2019, it reported profit after tax and minority interests (PATMI) of US$120.0 million, up 19.5% year-over-year, as revenue gained 10.1% to US$3.9 billion.

The Group has also learnt key lessons from the oversupply in the Indonesian poultry industry in 2014 and 2015, as well as the African Swine Fever (ASF) outbreak in Vietnam in 2019. Despite these major down-cycles, Japfa has delivered healthy EBITDA every year.

“We’ve emerged stronger from all these challenges. Such events – if we are adaptive and able to respond quickly with the right measures – can give us a lead over competitors, and help us build on the foundation for our future.”

For instance, thanks to Japfa’s strict biosecurity and farm management protocols, it was able to contain the adverse impact of the ASF and capitalise on the rebound of swine fattening prices in Vietnam in the last quarter of 2019.

“Our strategy of building a swine breeding pyramid gave us the opportunity to replenish our swine breeding stock more quickly than the competition,” Tan recalled. “As a result, we were able to boost our share of the swine fattening market amidst shrinking supplies in the country.”

Nevertheless, one challenge the 59-year-old is keeping a close eye on is none other than COVID-19. 

“As Japfa provides an essential service by supplying staple proteins, largely to the domestic markets in which they are produced, our day-to-day operations have not, thus far, been materially impacted by the lockdowns,” Tan noted.

In particular, Japfa has seen a recovery in demand for raw milk in China. “With the general shortage of raw milk in the country, and as an independent raw milk producer, we’re poised to benefit,” he added.

In Vietnam, pork demand remains relatively stable after the substantial fall in pork supply post-ASF, due to culling. However, the situation in Indonesia remains fluid – the country’s partial lockdowns have reduced consumer spending and impacted poultry demand, leading to a continued decline in broiler prices.  

“As this pandemic is an unprecedented event, the ultimate impact cannot be estimated with any certainty. Against this backdrop, we’re focused on reducing costs and remaining efficient, as well as adjusting our investments and deploying our resources appropriately,” he added.

When Tan isn’t managing Japfa’s operations, he can be found with his son, 20, and daughter, 25. “I talk to them, and sometimes, I lecture them. But after a while, they get tired of hearing my voice, and all conversation grinds to a halt,” he laughed.

But one thing is clear: His children are encouraged to live by a code of ethics. “I’ve always taught them to be a good person, to treat others with respect, show empathy, and have integrity.”

“That’s how you develop and maintain your moral compass in this life.”  Japfa Ltd

Headquartered in Singapore, Japfa is a leading vertically integrated agri-food company listed on SGX Mainboard since 2014. Established in 1971, the Group has grown into one of Asia’s leading low-cost producers of protein staples, including poultry, beef, dairy, as well as protein-based consumer products across fast-growing emerging Asian economies, such as Indonesia, China, India, Myanmar and Vietnam. Japfa embraces an integrated industrial approach to livestock and food production across the value chain. Its vertically integrated business model spans Feed and Breeding (upstream), Milking and Fattening (midstream), and Processing and Distribution of consumer products (downstream).

The company website is: www.japfa.com.  
Click here for the company's StockFacts page.  
For the quarter ended 31 March 2020 financial results, click here.   About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file  kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.  
For previous editions of kopi-C: the Company brew, please click here.    
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to jennifer.t@sgx.com.

 



Indonesia

PT Japfa Comfeed Indonesia Tbk manufactures animal feed, breeds and processes chickens, and operates aquaculture farms.  The Company trades its products domestically and internationally.

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Japfa Comfeed Indonesia (JPFA IJ)

Japfa Scales Up to Feed Emerging Asia

What drives Japfa CEO Tan Yong Nang out of bed every morning is the awareness that he is contributing – one way or the other –...

Singapore Exchange Ltd (SGX)

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