Books have opened for the IPO of Indonesian meat processor and dairy farm operator Japfa, which aims to float its shares in a Singapore listing and raise up to S$248.1 million ($199.7 million).
Some 248 million shares are being offered between S$0.75 to S$0.87 per unit, with the shares representing 14.2% of the enlarged share capital, according to a term sheet.
An exercised greenshoe option would add an additional 37.2 million shares and bring the amount raised to S$248.1 million.
Credit Suisse and DBS are leading the deal, with demand robust — books were covered several hours after the bookbuild began, a banker close to the deal told FinanceAsia.
The issuer and syndicate will take orders up to August 5, with a listing set for August 15. The issuer and syndicate have spent the past few weeks gauging investor interest.
A six-month lock-up is in place for the issuer and major shareholders. This price range puts the issuer’s market capitalisation at between S$1.34 billion and S$1.55 billion.
The company is being marketed at 8.8 to 10.2 times its 2015 earnings, a discount to most of its comparables, according to another banker.
Comparables
Japfa, controlled by Indonesia’s Santosa family, breeds and processes chicken, beef and pork, and also operates dairy farms in China and distributes brands such as Greenfields milk in Southeast Asia and Hong Kong.
The company is vertically integrated and focuses on the whole protein food value chain, and as such does not have any direct comparables, bankers close to the deal told FinanceAsia.
However, certain parts of the company’s business can be compared to a number of large Chinese dairy players, such as China Modern Dairy and China Huishan Dairy. Japfa is being marketed at a discount to China Modern and China Huishan, both of which have suffered poor performance this year.
China Modern, the country’s largest upstream producer, which listed in Hong Kong last year, is down 14% year-to-date to 15.36 times its 2014 earnings. China Huishan meanwhile has plummeted 38% this year to trade at 11.96 times its 2015 earnings.
China Shengmu Organic Milk has also been mentioned as a peer, but Shengmu, which relied on friends and family to complete its $137 million IPO earlier this month, is more niche as it focuses on the organic milk market, bankers told FinanceAsia.
Sentiment on the Chinese milk sector has soured in general, with concerns primarily centred on volatile raw milk average selling prices, higher promotional costs and larger inventories.
Regional protein peers include two separately listed entities of the CP Group — Charoen Pokphand Indonesia, which is up 16% so far this year, and Charoean Pokphand Group in Thailand, which is down 9%. Both are trading at 19 times 2014 earnings.
Company
Japfa reported sales of Rp21.4 billion ($1.8 million) in 2013 compared with Rp17.8 billion in 2012 and Rp15.6 billion in 2011, according to its annual report. Its net income declined, however, totalling Rp595 million last year, a 67% drop from Rp995 million in 2012 and a 4% decline from Rp617 million in 2011.
Some of the proceeds from the IPO will go towards paying down debt — the company’s total liabilities stood at Rp9.7 billion as of 2013 compared with Rp6.2 billion in 2012. The company also aims to invest in its Chinese dairy business and construct a second five-farm hub in Mongolia.
Japfa Ltd owns 57.5% of PT Japfa Comfeed Tbk, which is listed in Jakarta and trading at 13.73 times its 2014 earnings. Shares are down 0.8% this year up to July 29, according to Bloomberg data. Since peaking on March 17, shares have dropped 25%. The company’s market capitalisation is Rp13.4 trillion.
Analysts are reasonably bullish on Japfa Comfeed Indonesia’s future growth — it is the second largest poultry player in Indonesia with its animal feed, day-old chick and commercial farm accounting for 86% of its sales volume.
Yet other analysts caution about the depreciating rupiah, which negates the benefit of lower raw material costs.
Singapore IPO market
A number of issuers have sought to tap into capital markets in Singapore in recent weeks amid improving market conditions in the Lion City.
I-Reit Global Management, which owns a portfolio of German office buildings, fixed the offer price for its IPO in mid-July and aims to become the first European real estate investment trust to list in Singapore.
Accordia Golf Trust, a golf-course backed spin-off from Japan’s Accordia Group, also priced its IPO at the bottom of the range, raising S$759 million in a re-structured offering last week.
