KUALA LUMPUR: A robust rise in chicken prices is expected to boost integrated poultry producer PWF Corporation Bhd (PWF)’s earnings.
The government’s move to remove price controls and subsidies on chicken as part of the National Food Security Plan has improved the outlook and is being touted as a positive development for producers like PWF, Apex Securities said in a report.
In addition, the measure will give broiler farmers more flexibility to adjust prices according to changing market conditions.
Additionally, chicken prices 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, before increasing to RM7.00 per kg in the second quarter (Q2) of 2024.
Apex Securities also noted that prices of soybeans and corn, key feed ingredients, have fallen due to improved global supply conditions.
Feed costs account for around 70% of PWF’s production costs, so any changes are expected to impact profit margins.
“Reducing cost pressures on these commodity prices will benefit PWF’s feed mill operations and lead to reduced input costs.
“We expect PWF to achieve better margins in the coming quarters due to stable chicken selling prices and lower feed costs,” analyst Jayden Tan said in a report.
Touching on the industry trends, Apex Securities noted that due to changing competitive environment, advancements in agricultural technology and state government initiatives to transition farms towards closed cooperative systems, it expects broiler producers to gradually adopt these changes.
The move will require significant capital expenditure (CAPEX) and will likely lead to the closure of smaller, less profitable farms and consolidation of fewer but larger players.
“Large players like PWF are well poised to benefit from this trend as lower overall supplies support chicken prices.
“In addition, further merger and acquisition (M&A) opportunities are also being considered for PWF to expand its capabilities,” Tan said.
Financially, PWF achieved revenue of RM556.5 million in FY2023 from RM486.2 million in FY2022 on higher egg and broiler sales volumes and improved production levels.
In FY22 and FY23, the group received subsidies of RM45.3 million and RM66.2 million for broilers and eggs respectively.
“Looking ahead to FY24 and FY25, with the removal of chicken subsidies, we estimate that the group’s subsidies to be received from the government will decrease to between RM26 million and RM27 million in both years,” Tan pointed out.
He said despite cuts in government subsidies, Apex Securities expects core net profit growth to remain solid due to several factors including higher chicken meat prices, lower feed costs due to lower commodity prices, favourable foreign exchange terms due to the strengthening of the ringgit against the dollar and improved margins due to the increased contribution of functional eggs.
