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Poultry - Strong broiler price trend despite Suro seasonality shall be +ve for the sector
Wednesday, July 17, 2024       10:20 WIB

 Sector Update  / Poultry  / Click here for full PDF version 
 Author(s) :Andrianto Saputra,Lukito Supriadi 
  • Strong broiler price trend despite Suro seasonality indicates recent supply is matched with demand expectation through voluntary culling.
  • We expect strong feed margin to sustain in 2H24F due to benign input cost; potential lower feed ASP is supportive for broiler segment margin.
  • Maintain OW with as top pick due to robust FY24F earnings expectation (IPS: +31% above consensus).

Broiler price remains strong during Suro month
DOC and Broiler price remains strong at Rp7.7k/chick and Rp20.2k/kg despite Suro month starting on 7th of Jul24. This positive trend is contrary to FY22/23's seasonality pattern (Fig. 4) as the recent strong broiler price was driven by massive voluntary culling such that broiler supply is matched with demand expectation. If DOC and broiler price remains strong until end of Suro month (6th of Aug24), the negative impact of Suro month will be benign for 3Q24F - presenting further earnings upgrade potential.
Feed margin shall stabilize amid benign input costs
2Q24 average domestic corn price has normalized to Rp4.6k/kg (vs. avg. 1Q24 of Rp6.5k/kg) and has now stabilized at Rp4.2k/kg in mid-Jul24. We expect domestic corn price will be stable in 2H24F amid La Nina event in 2H24F (in-line with BMKG 's expectations) and also supported by higher domestic corn inventory as of Apr24 (+6% > 5Y average). At the same time, soybean meal (SBM) price which spiked in 2Q24 with avg. of Rp5.8k/kg (vs. 1Q24 avg. of Rp5.5k/kg) has stabilized to Rp5.4k/kg in mid-Jul24 on the back of USDA raising their soybean ending stocks forecast by 10mn bushels to 455mn bushels in FY24/25F, based on latest report in Jun24. As such, we expect 2H24F' feed segment EBIT margin improvement to high single digit (vs. 6-7% during higher input cost in 4Q23-1Q24).
Low input cost will improve broiler margin from potential feed ASP cut
Feed's benign input cost and the cost-plus business model shall likely to result in feed ASP cut, which in turn reduce broiler segment' input cost. To note, we estimate feed contributes 60-70% broiler segment cost. Assuming all else being equal, our sensitivity analysis shows that every 1% feed ASP cut may improve FY24F /JPFA broiler' EBIT margin by +72/+68bps - providing a thick buffer for broiler's profitability outlook in 3Q24F.
Light local fund positioning on - maintain sector OW
In terms of fund positioning, we observed local fund has UW position on (vs. OW on ) (Fig. 9-12) and current local fund positioning still lags substantially vs. FY21's poultry boom period. We reiterate as our top pick due to robust FY24F earnings growth (+115%), low FY24F consensus earnings expectation of Rp1.5tr (vs. ours' Rp2tr) and lighter local fund positioning (Fig. 11). We reiterate our OW call on poultry. Downside risk: poor corn harvesting in 2H24F and soft DOC & broiler price.


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