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Saturday, February 23, 2019

Poultry stocks on the rise

BUSINESS NEWS
Saturday, 23 Feb 2019
by daniel khoo

This comes as prices of poultry and eggs advance

A RISE in prices of poultry and eggs has brought attention on listed companies in the sector.

Most counters in the sector have seen their share prices rise in recent weeks on anticipation of bumper earnings.

However, not all investors are convinced that the rise in prices, and hence earnings of producers, will sustain over the longer term.

InterPacific Securities research head Pong Teng Siew tells StarBizWeek that he believes the rise in the prices of these basic food necessities is mainly attributed to the outbreak of the bird flu in Vietnam and once the issue is settled, things will normalise once again.

“For obvious reasons, the price rise in both egg and chicken is not sustainable since it is due to the bird flu in Vietnam.

“For a period of time, especially at the end of last year, we saw the rise in both chicken and egg prices because Vietnam had to cull their chicken livestock and import the remainder of their poultry needs from us,” Pong says.

The share prices of the producers of eggs and poultry have been positively impacted from this development.

These included stocks such as LTKM Bhd, Lay Hong Bhd, Teo Seng Capital Bhd and QL Resources Bhd.

In Teo Seng’s case, just this week, it reported close to a 20% rise in profit for its fourth quarter ended Dec 31, 2018.

Teo Seng attributed that to higher revenues and better efficiency . The company also says it is upbeat on its current year’s prospects. The poultry farming company’s board has said in view of the current stable supply of eggs and selling price, it is optimistic about the forthcoming year’s financial performance.

Teo Seng shares have risen almost 30% in the month-to-date for February.

However, one analyst reckons that the share price spikes of poultry stocks may not be sustainable.

“The chicken players are still commodity-based and margins are very thin. Nothing very interesting there from the market’s point of view,” the analyst says.

That said, there is data supporting a rise in chicken and egg prices.

According to data on the Agriculture and Agro-based Industry Ministry’s website, which tracks the price of eggs, the price for AA Grade eggs had risen to the year’s high of 43 sen in December last year.

However, checks at press time showed that there were no new updates on the price of eggs after Dec 18, 2018 on the ministry’s website.

Similarly the price for the retail price of standard chicken according to the ministry’s website showed it rising to a year high of RM8.40 per kg in December of last year.

Newer data was available for chicken prices until Feb 15 where the retail price of standard chicken continued to hold up well at RM8.15 per kg.

Pong says that it appears now that he expects the situation to normalise eventually and that it would take some time before Vietnam fully recovers from their bird flu episode that happened towards the end of last year.

“These are extraordinary circumstances that saw the additional import of eggs by Vietnam,” Pong says.

According to a Bloomberg report at the end of last year, the minister in charge of the Domestic Trade and Consumer Affairs Ministry Datuk Seri Saifuddin Nasution Ismail said that should prices for egg remain high, the country would need to examine if it is necessary to maintain its export of eggs at the current volume.

He said in the same report that eggs from Malaysia were also exported to places such as Singapore, Hong Kong, the Maldives and Mauritius.

Another reason that was attributed to the rise in egg prices included the increased prices of chicken feed that is mostly imported.

Saifuddin Nasution also said that most of the chicken feed is presently being imported from countries such as Brazil and Argentina with the business transactions being conducted in Singapore before the supply was actually brought into the country for use.

At this juncture there appears to be several reasons attributed to the rise in egg prices which have also caused the increase in price and valuations of several of the public listed companies that are involved in this industry.

From a corporate angle, market dealers also say another plausible reason for the rise of the poultry industry’s share prices could also be interest picking up in the sector following two upcoming listings slated for this year that are involved in a related part of the industry.

They are QSR Brands (M) Holdings Bhd, which operates the Kentucky Fried Chicken (KFC) and Pizza Hut fast food chains and Leong Hup International Bhd which is involved in livestock feed manufacturing, egg production and poultry farming.

It was recently reported by StarBizWeek that QSR could be looking to list at a historical PER of around 40 times and a forward PER of 30 while Leong Hup is said to be looking at a forward PER of around 30 times earnings.

If these companies do manage to get listed on those toppish valuations, it is likely to drag upwards other listed poultry stocks which are lagging behind in terms of their valuation.

Whether a weak local currency or strong listing valuations, the poultry industry does clearly appear to be pushed around by many variables at this point in time.

It also remains to be seen if the government can do anything on its end to help stabilise an industry that is deemed sensitive to national interests since chickens and eggs are among the cheapest protein choice for most Malaysians.

Read more at https://www.thestar.com.my/business/business-news/2019/02/23/poultry-stocks-on-the-rise/#ajZMg49hvFuTdkOK.99

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