February 18, 2019
Indonesia's chicken shortage could further push poultry stocks
Indonesia's poultry stocks could seen more gains this year, as the country's chicken shortage is expected to worsen, according to financial service provider CGS-CIMB Sekuritas.
The supply of chicks could fall to three billion in 2019, from 3.2 billion in 2018, based on projections made by the country's poultry association. The decline came after the government banned the use of antibiotics in chicken feed, analyst Patricia Gabriela wrote in a report.
As a result of a shortage of chickens, the stock price of poultry producer PT Charoen Pokphand Indonesia had rose 2.8% since the start of this year after increasing 140% last year. The company is expected to report a record profit for 2018, with its widest net profit margin in five years, according to analyst estimates compiled by Bloomberg.
In addition, shares of PT Malindo Feedmill increased 20% this year after rallying 89% in 2018, while PT Japfa Comfeed saw its shares rose 27% for this year, adding to its 65% gain last year.
According to Garbriela, the price of a day-old-chick (DOC) rose 42% year-on-year in January, after poultry prices reached all-time high last year.
"The higher DOC price reflects its more acute shortage, which we expect to normalise in 3Q19F," wrote Gabriela, who maintains an overweight recommendation on the industry.
"We expect the sector's up-cycle momentum to last up to 2Q19."
Still, higher corn prices and the government intervention pose risks for the industry. Indonesia President Joko Widodo has been putting more effort in controlling inflation and prices of basic necessities ahead of presidential and general elections in April.
While the government can ask producers to cut prices, especially if the cost of chicken rises too steeply ahead of the Ramadan festive season in the middle of this year, CIMB said not much can be done to fix the industry's shortage.
"The government can only ask the big poultry players to sell DOC at a discounted price to independent farmers," Gabriela wrote. "Overall, we believe there is not much the government can do to correct the current environment of supply shortage."