Good morning,
Development of poultry sector in 2Q16
The good:
• Due to better supply/demand dynamics and the breeding season for Lebaran, broiler (live bird) and day old chick (DOC) prices have been increasing since the beginning of April, currently at IDR6,650/bird for DOC and IDR20,000/kg for broiler. Recall about 7.5m-8.0m/week of DOC production were eliminated after the culling program in late 2015, as a results, both broiler and DOC prices are now 15-20% higher than the same period in 2015, this will be beneficial to the poultry companies operating margins in the coming 2Q16 results, live birds and DOC segment merely breakeven in 1Q16.
The bad:
• Due to a severe flood in Argentina, the third largest soybean exporter of the world, soybean meal price has skyrocketed from USD260/tonne to about USD410/tonne since the beginning of April. Soybean meal makes up for 20-25% of feed cost of goods sold, the impact on margin will be minimal in 2Q16 due to the poultry companies’ raw material holding period of 3 months. Assuming ASP to stay constant, these will impact feed gross margin by approximately 5-6% in 3Q16. However, current feed ASP of 6,200-6,300/kg is lower than listing price of 6,500/kg, and hence, we believe there will be a cost push increase of feed ASP in 3Q16 and ultimately lower the impact to about 2-3%.
• Rupiah has depreciated by 3% since middle of May due to stronger USD, stemming from a potential interest rate hike, this means that forex gain of Charoen Popkhand Indonesia (CPIN IJ, BUY, TP: IDR3,700) and Japfa Comfeed Indonesia (JPFA IJ, BUY, TP: IDR1,150) will likely be reversed in 2Q16, Malindo Feedmill (MAIN IJ, Neutral, TP: IDR1,300) will not be impacted by this because of its 95% IDR debt structure.
Overall still positive:
• We remain upbeat towards the sector due to better supply and demand dynamics of poultry that drives an margin upcycle of longer than 1 year. For 2016, improvement is mainly on forex losses reversal and gross margin improvement due to higher average poultry prices while in 2017, we believe there will be volume growth, this in turn will utilize the excess DOC and live bird capacity in the market and improve DOC and live bird cost of goods sold.
• Historically speaking, poultry companies have been able to pass their feed costs pressure and maintain margin, this is highly dependent on poultry demand.
• Our top pick is Charoen Popkhand Indonesia.
Link to Daily report: Indonesia Morning Cuppa - 030616
________________________________________
Media Highlights:
Economics
Government to cut revised budget revenue to IDR88trn
Corporates
Bank Mandiri to stabilise the non-performing loan ratio in 2H16
Bank Mandiri (BMRI IJ, Neutral, TP: IDR10,500) projected the non-performing loan (NPL) ratio will stable in 2H16. This year, the company also continue to hold down the NPL growth by conducted early restructuring. According to the company, until 4M16, the NPL trend shows a bit increase to 3.2% compared with 3.18% in 1Q16. Besides that, The company aggressively conducted the restructuring for debtor who potential to be non-performing loan. Until 2Q16, the company to restructures worth IDR15trn from eight debtor. (Bisnis Indonesia)
Comment: As we already emphasized in our reinitiation report, Bank Mandiri would need longer time to improve its assets quality given its exposure to derivatives sector of commodity, ie suppliers and vendors of coal company. The management guided that for June 2016’s position gross NPL would reached 3.5% and expect that the significant improvement in asset quality would happen in next year. We still expect gross NPL at 2.6% with 151.6% loan loss coverage ratio for this year.(Eka Savitri)
Blue Bird revised capex allocation to IDR1.2trn
Telkom cancelled AP Teleguam acquisition
Wijaya Karya aims for Sumbagut 1 CNG based power plant
Golden Eagle aims electricity project in South Sumatra
Sepatu Bata to increase production capacity
LSUV recorded decrease in sales in April 2016
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
Disclaimer: This message is
intended only for the use of the individual or entity to whom it is addressed
and may contain information that is confidential and privileged. If you,
the reader of this message, are not the intended recipient, you should not
disseminate, distribute or copy this communication. If you have received
this communication by mistake, please notify us immediately by return email and
delete the original message. This message is transmitted on the condition
that the recipient accepts the inherent risks in electronic data transmission
and agrees to release RHB group and RHB Securities from any claim
which the recipient may have as a result of any unauthorized duplication,
reading or interference with the contents herein. The contents herein are made
in the personal capacity of the above-named author and nothing herein shall be
construed as professional advice or opinion rendered by RHB group and RHB
Securities or on its behalf.
