WHILE the marginal increase in ceiling price comes as a slight relief to poultry players who have been facing margin compression due to elevated input cost, it is unlikely to completely compensate for the extra costs borne by breeders, especially smaller players.
Nevertheless, TA Securities Research expects this “little leeway” for an increase in average selling price (ASP) to slightly improve the earnings of integrated poultry players Leong Hup International Bhd and QL Resources Bhd as their input cost seems to have moderated recently.
Yesterday (June 29), the Government raised retail ceiling price for broiler chickens to RM9.40/kg (previously RM8.90/kg) while grade A eggs, grade B eggs and grade C eggs are now priced at 45 sen, 43 sen and 41 sen each (2 sen increase from previous ceiling price).
According to source, the new ceiling price for chicken from farm will be at RM6.00/kg (previously RM5.60/kg) while eggs from farm will have ceiling price of 41 sen, 39 sen and 37 sen each (2 sen increase from previous ceiling).
“Prices has been surging across the board for livestock mainly due to increased feed price and demand recovery from the reopening of economy. The average prices of live ducks, cows and pigs in Malaysia have increased 8-32% compared to last year,” observed analyst Tan Kam Meng in a consumer sector update.
“The spike in prices of livestock other than chicken where the price has been kept low via ceiling price led to even higher demand for chickens. As such, it is not surprising that Malaysia faced shortage of chicken and had to impose an export ban.”
Regarding the export ban, TA Securities Research said Leong Hup has been supplying frozen chickens sourced overseas as substitute for live chickens to the group’s Singapore customers.
“We believe that the export ban will unlikely be material on Leong Hup’s earnings as there is low likelihood that it will lose its Singapore customers, considering that the sales in the industry operates based on trust.
“QL sells its broiler chickens domestically and hence is unaffected by the ban,” noted the research house which has reiterated its “buy” rating on both Leong Hup and QL with respective target prices of 89 sen and RM6.00.
Commenting on surging input cost, TA Securities Research said global commodity prices have surged and remained elevated, especially since the Russian-Ukraine conflict.
“Corn and soybean which are sources of carbohydrates and protein respectively in poultry feed have risen 11% and 9% year-to-date (YTD). Fortunately, the prices were moderating recently due to fears of impending US recession,” the research house pointed out.
“Nonetheless, we still expect the input price to remain elevated at around current levels unless the Russian-Ukraine conflict ends and the price of natural gas drops.” – June 30, 2022