PETALING JAYA: The poultry industry retains sound medium-term fundamentals, supported by resilient demand for affordable protein. However, its reliance on imported feed leaves producers exposed to global cost pressures, say analysts.
MBSB Research maintained its positive consumer-sector recommendation, favouring poultry operators with stronger integration, balance sheets and diversified earnings.
“Chicken and eggs remain important staple proteins, domestic production capacity is well established and demand should remain defensive.
“The main challenge is in the upstream segment,” it said. “Malaysia’s poultry system remains almost entirely dependent on imported maize and soybean meal, leaving producer economics exposed to global grain prices, foreign exchange, freight and climate conditions in major exporting countries.”
Malaysia’s chicken self-sufficiency stands at around 91% to 93%, while egg production exceeds domestic requirements at approximately 107%.
However, maize self-sufficiency is just 0.2%, implying 99.8% import dependence. Soybean and soybean meal are effectively entirely imported, mainly from Brazil, Argentina and the United States.
“The reliance makes feed procurement the industry’s main vulnerability, with currency fluctuations, shipping disruptions and adverse weather in supplier countries potentially raising production costs,” it noted.
“Integrated producers should remain better positioned than smaller operators through scale, procurement, hedging and control across the production chain,” MBSB Research said. Over time, further investment in feed localisation, farming automation, breeder capacity and value-added products could improve industry resilience and reduce earnings volatility,” it added.
For Leong Hup International Bhd
, raw materials account for around 83% to 85% of feedmill production costs. Corn and soybean meal together represent approximately 70% of poultry feed costs.
The research house retained its “buy” call on Leong Hup with a RM1.03 target price, citing its integrated feed-to-poultry operations and exposure to staple-protein demand. It maintained a neutral recommendation on QL Resources Bhd with a RM4.11 target price.
QL’s marine products, convenience-store and palm oil and clean-energy businesses help cushion fluctuations in livestock earnings.
During the 2022 grain shock, QL’s group earnings before interest and tax margin ranged between 7.7% and 9%, compared with Leong Hup’s wider 2.9% to 8.2% range.
MBSB Research cautioned that prolonged pressure on smaller farmers could eventually affect supply.
“Where feed remains expensive while selling prices are constrained, the rational response is to reduce placements, defer expansion or exit, tightening supply even where national installed capacity appears adequate,” it said.
Government intervention could also complicate producers’ ability to pass higher costs through to consumers.
“The intervention lowered the immediate consumer burden but transferred it to producers and the fiscal account, the core food-security trade-off,” the research house said of the 2022 to 2023 price-control period.
It added that larger operators could negotiate supply contracts, maintain inventories and access banking facilities more readily, allowing them to sustain production through temporary margin pressure.
