The government of Malaysia announced the cessation of subsidies to chicken farmers starting 1 July this year and will redirect the amount allocated for the subsidy to consumers instead.
While there is still a lack of details on this new development, we believe the abolishment of the subsidy will likely lead to the government increasing the current ceiling price (live chicken at RM5.90/kg and standard chicken at RM8.90/kg) to ensure that poultry farmers could operate sustainably without burdening consumers with the price increase.
The decision to redirect the subsidy to consumers is likely due to the ineffective implementation of the subsidy programme. The claiming process was bogged down by red tape, requiring several levels of approval.
Agriculture and Food Industries Minister Ronald Kiandee said that out of the RM729mil amount allocated for the subsidy programme, only RM71mil has been distributed as of 31 May this year. Due to this, smaller farmers that do not have sufficient cash to bridge the working capital gap while waiting for the subsidy payment, will likely stop production, exacerbating the supply shortage.
Overall, we believe the impact will be neutral to Leong Hup International as the absence of the subsidy will be offset by the potential increase in the chicken ceiling price.
We maintain our HOLD recommendation on Leong Hup with a fair value of RM0.50 based on a FY22F PE of 17x – at -1.5 SD of its 3-year historical average.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....