We
keep our positive view on the poultry industry, seeing that Indonesia
is currently in the early cycle of increasing chicken consumption –
driven by rising personal income, a steadily growing population and an
ongoing urbanization trend. There may be some challenges on the
purchasing power side, but we expect the impact to be soft. Maintain
OVERWEIGHT with MAIN as our top pick.
* Still on the right course.
We reiterate our positive view on the prospects of the Indonesian poultry industry as the country is still in the early cycle of increasing chicken consumption, estimated at 7.4kg per capita by Gabungan Perusahaan Pembibitan Unggas (GPPU or Indonesian Poultry Breeders Association; note that other sources may cite lower estimates), compared with neighboring Thailand (~13kg), Malaysia (~37kg) or even the Philippines (8.4kg), which has a lower GDP per capita.
That said, a recent hike in fuel prices and the threat of inflation in general may weaken purchasing power. Nevertheless, we expect the negative impact of these factors on the poultry industry to be mild, considering that people tend to reduce the consumption of luxury goods first before cutting their spending on food. In addition, the rise in minimum wages earlier this year should provide some buffer and partially offset the impact of inflation.
* Expecting a good 2Q13.
We expect the 2Q13 results of companies in this sector to be better than in 1Q13, either on a quarterly or yearly basis, driven by the high seasonal day-old chicks (DOC) benchmark prices (April to mid-June average prices rose 8% q-o-q and 13% y-o-y) and declining raw feed prices (although selling prices remain at stubbornly high levels).
The price of corn (in IDR) dipped 6% in 1Q13 from its peak in 3Q12, while soybean meal prices (in IDR) dropped 15% in the same period. Since raw material prices remained stable in 2Q13, we expect to see good 3Q13 results on y-o-y basis.
On a q-o-q basis, however, we could see a drop as DOC prices seasonally fall in the three weeks before the Lebaran (Eid al Fitr) festivities, which is expected in early August.
* MAIN still our top pick.
We just rolled over our DCF-based valuation to 2014. In terms of business model, we still like CPIN the most, but its rich 18.8x FY14F P/E prompts us to put a NEUTRAL call on the stock. We like MAIN, whose business model is closest to CPIN but is endowed with better growth prospects and a deep discounted valuation of 11.7x FY14F P/E.
We also changed our recommendation on our least preferred poultry counter, JPFA, from TAKE PROFIT to NEUTRAL, as the stock’s valuation has dipped below our Fair Value. Recently, JPFA’s valuation fell below MAIN’s, which proved our earlier thesis on relative valuation among Indonesia’s poultry players.
me @ LOTS Trading Club (LTC)
* Still on the right course.
We reiterate our positive view on the prospects of the Indonesian poultry industry as the country is still in the early cycle of increasing chicken consumption, estimated at 7.4kg per capita by Gabungan Perusahaan Pembibitan Unggas (GPPU or Indonesian Poultry Breeders Association; note that other sources may cite lower estimates), compared with neighboring Thailand (~13kg), Malaysia (~37kg) or even the Philippines (8.4kg), which has a lower GDP per capita.
That said, a recent hike in fuel prices and the threat of inflation in general may weaken purchasing power. Nevertheless, we expect the negative impact of these factors on the poultry industry to be mild, considering that people tend to reduce the consumption of luxury goods first before cutting their spending on food. In addition, the rise in minimum wages earlier this year should provide some buffer and partially offset the impact of inflation.
* Expecting a good 2Q13.
We expect the 2Q13 results of companies in this sector to be better than in 1Q13, either on a quarterly or yearly basis, driven by the high seasonal day-old chicks (DOC) benchmark prices (April to mid-June average prices rose 8% q-o-q and 13% y-o-y) and declining raw feed prices (although selling prices remain at stubbornly high levels).
The price of corn (in IDR) dipped 6% in 1Q13 from its peak in 3Q12, while soybean meal prices (in IDR) dropped 15% in the same period. Since raw material prices remained stable in 2Q13, we expect to see good 3Q13 results on y-o-y basis.
On a q-o-q basis, however, we could see a drop as DOC prices seasonally fall in the three weeks before the Lebaran (Eid al Fitr) festivities, which is expected in early August.
* MAIN still our top pick.
We just rolled over our DCF-based valuation to 2014. In terms of business model, we still like CPIN the most, but its rich 18.8x FY14F P/E prompts us to put a NEUTRAL call on the stock. We like MAIN, whose business model is closest to CPIN but is endowed with better growth prospects and a deep discounted valuation of 11.7x FY14F P/E.
We also changed our recommendation on our least preferred poultry counter, JPFA, from TAKE PROFIT to NEUTRAL, as the stock’s valuation has dipped below our Fair Value. Recently, JPFA’s valuation fell below MAIN’s, which proved our earlier thesis on relative valuation among Indonesia’s poultry players.
me @ LOTS Trading Club (LTC)
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