2Q24:Updated Relaxation Regulations; DOC price reached all-time high

On 13 Jun-24, National Food Agency released Regulations of Indonesia National Food Agency no.6 of 2024 letter, regarding changes to National Food Agency Regulation no.5 of 2022 on purchase reference price for producer and consumer level regarding corn, eggs and broiler meat (see Exhibit 1). Key highlights include:

Reference purchase prices at producer level are determined by considering: production cost structure; profit, according to the characteristics of corn, broiler egg and broiler meat.
There is no more upper and lower limit for Broiler, only one reference price at IDR25k/bird.
The regulation starts to take place on 13 Jun-24, will be in place until further notice.

In Jun-24, prices for DOC increased to IDR7.7k/bird (+3.2% MoM, +5.1% YoY) reaching an all-time high since 2014. The prices have been supported by individual culling by companies to regulate supply issue, as well as recent regulations on reference price relaxation (see Exhibit 1). This brings 2Q24 price avg. to IDR7k/bird (+37% QoQ), highest quarter recorded.
Broiler prices saw a decrease to IDR19.3k/kg (-8.0% MoM, -15.6% YoY), slightly above cost level at ~IDR19k. Referring to the latest regulation on poultry price released mid-June, the previously regulated lower and upper limit price has been removed and might have caused the decrease. In addition, CPI data also showed that one of foodstuffs deflation led by chicken. This brings 2Q24 price avg. to IDR20.7k/kg (+3% QoQ).
Historically, between 2018 – 2021, DOC prices were recorded the lowest in 3rd quarter as Suro month started in July, causing demand for chicken to decrease (see Exhibit 7). However, we see that in 2022 and 2023, there are interventions from the govt. on culling, so it wasn't the case anymore. We expect to see slight decrease in prices for both DOC and Broilers for 3Q24, but still at a price of above the cost.

Maintain Overweight call on Poultry Segment

We anticipate an upbeat 2Q24 results, projecting NP of ~IDR1,214bn and ~IDR692bn for CPIN and JPFA respectively (see Exhibit 7), driven by high prices in poultry as relaxation on prices started in May-24. Post earnings results release, we see potential re-rating for the sector. We still maintain our O/W call on the sector, with pecking order of CPIN, JPFA. The sector's catalyst remain dependent on 1) lower feed raw materials cost; 2) regulation on reference price relaxation; 3) significant decrease from GPS stock, to solve oversupply, affecting poultry price issue. Our TP for CPIN is at IDR6,000 (reflecting target PE'24F of 28.5x at -0.5std), followed by JPFA at IDR1,800 (reflecting target mean PE'24F of 12.2x). Risks to our call include: sudden change in regulation for poultry, spike in raw material prices, lower than expected demand.

Poultry - Upbeat 2Q in Sight

Poultry - Upbeat 2Q in Sight

Management Team

Tata Kelola Perusahaann

17 July 2024 - 07.00am

Poultry - Upbeat 2Q in Sight

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