PT Japfa Comfeed Indonesia Tbk.

The stable outlook on PT Japfa reflects our view that Japfa Ltd. and PT Japfa will: (1) proactively manage their debt maturities; (2) maintain adequate liquidity buffers; and (3) control capex, dividends, and debt amid the steady recovery of their businesses over the next 12 months. The stable outlook also reflects our view that PT Japfa will remain a core subsidiary of its parent. We may lower the rating on PT Japfa if we see: Any signs of weakened group support from Japfa Ltd. to PT Japfa such that we no longer believe the parent will provide extraordinary support to PT Japfa under all foreseeable circumstances. The group's financial policy is more aggressive than we expect. This could be the

...PT Japfa Comfeed Indonesia Tbk.'s improved liquidity buffer should help it to withstand potential working capital swings. The company's liquidity buffer strengthened after it repaid about Indonesian rupiah (IDR) 3.6 trillion of short-term debt in the fourth quarter of 2020 using cash on hand and internally generated operating cash flow. We don't expect PT Japfa's short-term debt to return to the peak levels seem during the first nine months of 2020. This is given the poultry oversupply has eased and domestic demand is slowly recovering, reducing the impetus for the company's short-term debt to significantly exceed its working capital and liquidity needs. PT Japfa's IDR3.3 trillion of undrawn committed bank lines (maturing beyond 12 months as of end-December 2020) also support liquidity by easing the stress on cash flow from the seasonality of working capital. PT Japfa's operating profit margin should stabilize on the back of the government's proactive culling programs. We forecast the company's...

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