Price control for chicken and eggs is expected to be removed after June 2023 based on Agriculture and Food Security Minister Datuk Seri Mohamad Sabu statement that the prices for chicken and eggs are anticipated to be floated after June as part of the government’s efforts to overcome the food shortage. By floating prices for chicken and eggs would allow the Ministry of Domestic Trade and Cost of Living to keep track of and evaluate changes in the pricing of the items relative to the established ceiling price.
Recall that price ceiling for chicken and egg was imposed in July 2022 due to escalating prices for chicken and eggs. Note that in Peninsular Malaysia, the current retail ceiling price for standard chicken is RM9.40/kg and for eggs, is 45 sen for Grade A, 43sen for Grade B, and 41sen for Grade C.
MIDF is of view the removal of price control for the chicken to be positive for livestock players as that would allow livestock players to fully pass on higher production costs to customers by raising prices. The house gathers that the poultry players have been impacted by higher input costs due to rising animal feed prices (particularly soybean meal and corn), as well as increased minimum wages. It said currently the livestock players are only able to pass on the higher input cost partially to consumers due to price control despite the ongoing government subsidies for chicken and eggs. Hence, it believes that with the removal of price controls after June 2023, poultry farmers will have more flexibility in passing on higher costs to consumers and improving profit margin. The main beneficiaries would be Leong Hup International (BUY, TP:0.80) and QL Resources (BUY, TP: RM6.30) as they are the key poultry players in Malaysia.
However, MIDF makes no changes to the earnings forecast for livestock players under its coverage for now pending further details on the removal of price control for chicken and eggs. The higher feedstock prices are also expected to partially offset the impact of the removal of the price ceiling.
Overall the research house maintains a POSITIVE stance on the consumer sector due to: (1) a steady labour market that supports domestic consumption, (2) positive domestic spending ahead supported by the STR programme to B40 groups, and (3) better margins for food and beverage producers due to lower global commodity prices and a stronger MYR. Our top Buys for consumer sector are F&N Holdings (BUY, TP: RM33.50), QL Resources (BUY, TP: RM6.30), and AEON Co (BUY, TP: RM1.81).
