April 14, 2020
Malaysia's poultry farming to slow down amid lower prices, supply
Poultry farming activities in Malaysia are seen to slow down because of lower costs and decreasing supply in the market, which will eventually support prices, says AmInvestment Bank Bhd.
The bank said poultry demand was impacted by lower restaurant sales and canteen closures in schools and factories during the Movement Control Order (MCO).
The increased demand from households was also unable to make up for the loss of sales to restaurants and canteens, and as a result, both sales volume and selling prices took a beating.
"We believe that consumers prefer items with longer shelf life and instant meals as opposed to fresh poultry," it said.
Meanwhile, AmInvestment Bank has maintained its "buy" call on shares of Leong Hup International Bhd (LHI), one of the largest fully-integrated producers of poultry, eggs and livestock feed in Southeast Asia, albeit with a lower fair-value price of MYR0.76 versus MYR0.86 previously.
"We have cut our financial year 2020 forecast (FY20F), FY21F and FY22F for LHI's earnings by 16%, 11% and 6%, respectively.
"Average selling prices for poultry products have fallen across LHI's operations, and even though prices of eggs have remained steady at around 0.30 sen in Malaysia and Indonesia, we expect lower sales volume for the year for the group," the bank said.
The group's operations are running as usual during the MCO and there has been no disruption to the supply chain so far, it said.
However, the extension of the MCO to April 28 is expected to have a negative effect on the group as it will prolong the downward pressure on selling prices and sales volume for poultry products.
"We expect demand to return slowly after the MCO is lifted as consumers remain cautious due to the COVID-19 pandemic and believe the metrics will recover in the FY21F, assuming the pandemic is contained in 2020," it said.
AmInvestment estimated LHI to face a contraction in earnings of around 2% on-year MYR163 million in FY20F before growing by roughly 22% to MYR199 million in FY21F.
"Nevertheless, we believe that the long-term outlook for LHI is positive due to the stable demand for poultry as a staple product and strong long-term earnings growth underpinned by expansions of the feedmill and livestock businesses in Malaysia, Vietnam and the Philippines," it said.