KUALA LUMPUR: Resilient and rising chicken prices are expected to boost earnings for integrated poultry player PWF Corporation Bhd (PWF).
Apex Securities Bhd noted in a report that the outlook is boosted by the government’s move to abolish price controls and subsidies for chicken as part of the national food security initiatives, which is touted as a positive development for producers like PWF.
Further, the move allows broiler farmers greater flexibility to adjust prices in response to changing market conditions.
To note, chicken prices have fluctuated from RM5.90 per kg in the fourth quarter (Q4) of 2023 to RM6.50 per kg in the first quarter (Q1) of 2024 and reached as
high as RM7.00 per kg in the second quarter (Q2) of 2024.
Apex Securities also noted that the prices of soybeans and corn, major feed inputs, have declined due to favourable global supply conditions.
As feed costs constitute about 70% of PWF’s production expenses, any changes are expected to impact margins.
“Reducing cost pressure on these commodity prices benefits PWF’s feed mill operations, leading to reduced input costs.
“With stability in chicken selling prices and lower feed costs, we expect PWF to achieve better margins in the coming quarters,“ analyst Jayden Tan noted in the report.
Touching on industry dynamics, Apex Securities noted that amid the changing competitive environment and advancements in farming technology, coupled with state government initiatives to transition farms to closed-coop systems, the research firm foresees broiler production players are gradually adopting these changes.
The move requires substantial capital expenditures (capex), likely leading to the shutdown of smaller and less profitable farms and the consolidation of fewer but larger players.
“Larger-scale players like PWF are poised to benefit from this trend, as reduced overall supply will support chicken prices.
“Additionally, further mergers and acquisitions (M&A) opportunities for PWF to expand its capacity are on the cards,“ Tan said.
On financials, PWF achieved a revenue of RM556.5 million in FY23, up from RM486.2 million in FY22, driven by increased sales volumes of eggs and broilers and higher production levels.
In FY22 and FY23, the group received subsidies of RM66.2 million and RM45.3 million for broilers and eggs, respectively.
“Looking ahead to FY24F and FY25F, with the abolishment of chicken subsidies, we anticipate the group to receive lower subsidies from the government, forecasting RM26-27 million for both fiscal years,“ Tan noted.
He said that despite the reduction in government subsidies, Apex Securities forecast stronger core net profit growth driven by several factors, namely higher chicken prices, lower feed costs due to weakening commodity prices, favourable forex conditions with the strengthening ringgit against the dollar, and higher margins from the increased contribution of functional eggs.
