Reuters logo
Fitch Revises Japfa Comfeed's Outlook to Stable; Upgrades National Rating
December 14, 2016 / 5:39 AM / 9 months ago

Fitch Revises Japfa Comfeed's Outlook to Stable; Upgrades National Rating

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, December 14 (Fitch) Fitch Ratings has revised PT Japfa Comfeed Indonesia Tbk's (Japfa) Outlook to Stable from Negative. The agency has affirmed the Long-Term Issuer Default Rating at 'BB-'. Fitch Ratings Indonesia has also upgraded Japfa's National Long-Term Rating to 'AA-(idn)' from 'A+(idn)'. A complete list of rating actions is at the end of this commentary. The revision of Japfa's Outlook and upgrade of its National Rating reflects improved industry dynamics following intervention by the Indonesian government to address the demand-supply imbalance, lower leverage driven mainly by higher profitability and better liquidity. Apart from stronger cash flows, Japfa's liquidity has also been boosted by its bond issue in November 2016 and equity issuance in August 2016. This has alleviated repayment risks related to upcoming bond maturities in 2017 and 2018. 'AA' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers or obligations. KEY RATING DRIVERS Better Market Conditions: The Indonesian government has taken steps to manage poultry supply since 2H15, after oversupply weakened prices for day-old chicks (DOC) and live birds in 2H14 and 1H15, which resulted in losses at producers, including small-scale farmers. Domestic poultry producers culled around 3 million birds (parent stock), following a government directive in October 2015. Fitch believes the industry is more sustainable now that the Ministry of Agriculture has been formally given the authority to manage the domestic chicken supply. Chicken demand in Indonesia has also risen healthily in 2015, and Fitch sees robust growth prospects as per capita poultry consumption is low and the agency expects GDP growth to accelerate. Higher Margins, Lower Leverage: Japfa's EBITDA margin widened to 14.5% in 9M16, from 9.1% in 2015, driven by improved market conditions. Profitability in the animal-feed segment improved while sales of day-old chicks returned to significant profit in 9M16 after losses in 2014-2015. Japfa's net debt-to-EBITDA leverage dropped to 0.9x at end-September 2016, from 2.6x at end-2015. We estimate Japfa's leverage will remain at around 1.5x, assuming EBITDA margin narrows from 2017. We also expect Japfa to continue to generate free cash flows and have healthy fixed-charge coverage of over 4x. Improved Liquidity: Japfa issued IDR1trn of bonds with tenors of three and five years in November 2016 under its IDR3trn bond programme. Global investment firm KKR took a 12% stake in Japfa in August 2016, which injected IDR702bn of cash into the company. These should allow Japfa to meet the maturities of IDR1.5trn of bonds in January and February 2017. The company is likely to need further refinancing to repay USD199m of bonds due in 2018. However, the risk of Japfa failing to secure refinancing is low because of its robust credit metrics and good access to diverse funding sources, in our view. Cost Pass-Through Ability: Japfa is able to mitigate its exposure to rising raw material costs through a strong ability to pass through cost increases to customers in the animal-feed segment. This is due to the company's high market share and its ability to retain corn inventory and adjust output. PT Charoen Pokphand Indonesia Tbk (CPIN) and Japfa together control about 50% of Indonesia's poultry feed market, and react similarly to increases in raw material costs by seeking to raise prices. Japfa's corn dryers also allow it to store dried corn for up to four months, providing some flexibility in production. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Animal-feed sales volume to rise by 3% annually from 2017 - Average annual sales volume growth of 3%-5% for DOC and live poultry from 2017 - EBITDA margin narrows to around 9% from 2017 - Capex of around IDR700bn from 2017 RATING SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to positive rating action include: - Leverage (net debt/EBITDA) below 1.5x on a sustained basis (2015: 2.6x) - No material weakening of industry fundamentals and Japfa's market position Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Leverage above 2.5x on a sustained basis - Significant reduction in size of the animal-feed segment, which would be demonstrated in its share of total revenue falling below 30% (2015: 36%) - Failure to adequately address maturity of its US dollar bonds in 2018. FULL LIST OF RATING ACTIONS PT Japfa Comfeed Indonesia Tbk -- Long-Term Foreign-Currency IDR affirmed at 'BB-' and Outlook revised to Stable -- National Long-Term Rating upgraded to 'AA-(idn)' from 'A+(idn)' and Outlook revised to Stable -- Senior unsecured rating affirmed at 'BB-' -- US dollar notes issued by Comfeed Finance B.V. and due in 2018 affirmed at 'BB-' -- IDR1.5trn bonds due in 2017 upgraded to 'AA-(idn)' from 'A+(idn)' -- IDR3trn bond programme and IDR1trn of bonds issued under the programme upgraded to 'AA-(idn)' from 'A+(idn)' Contact: Primary Analysts Akash Gupta (International Ratings) Associate Director +65 67967242 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Bernard Kie (National Ratings) Analyst +62 21 29886815 PT Fitch Ratings Indonesia DBS Bank Tower Jl Prof Dr Satrio Kav 3-5 Jakarta 12940 Secondary Analyst Bernard Kie (International Ratings) Analyst +62 21 29886815 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016445 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below