20140303-Maybank_KERPL-Indonesia_Poultry_Golden_egg_–_stay_Overweight_36页_1mb

Indonesia Poultry Sector Summary

Core Content

The Indonesia poultry sector is maintained in an Overweight stance due to expected growth in meat poultry consumption and recovery in feed producers' margins. The three major feed producers—Charoen Pokphand (CPIN.IJ), Japfa Comfeed (JPFA.IJ), and Malindo Feedmill (MAIN.IJ)—are positioned to benefit from this growth.

Main Views and Key Information

1. Poultry Consumption Growth

• Forecasted 12.5% CAGR in meat poultry consumption from FY13F to FY17F, up from 7.4% CAGR in FY07-12.
• Chicken is the most affordable and widely consumed animal protein source in Indonesia.
• 55% of Indonesia's total meat consumption is chicken broiler, due to affordability and cultural preferences (pork is prohibited in Islam).
• Chicken consumption per capita is still among the lowest in Asia, indicating strong growth potential.

2. Margin Recovery

• Feed producers are expected to see net margins recover to 6-12% in FY14F-15F from 4-11% in FY13F.
• IDR stabilization and higher ASPs are key drivers of margin recovery.
• Corn and soybean prices are expected to remain low in FY14F-15F, reducing production costs.

3. Investment Thesis

• Malindo Feedmill (MAIN.IJ) is the top pick with a BUY rating and a target price of IDR4,350.
• Charoen Pokphand (CPIN.IJ) and Japfa Comfeed (JPFA.IJ) are also recommended due to their strong market positions and exposure to the processed chicken business.
• Key risks include disease outbreaks and sharp fluctuations in feed prices.

4. Market Structure and Expansion

• The poultry industry is domestic-driven, with limited imports and exports of end-products.
• Expansion opportunities exist in outer Java, where infrastructure is underdeveloped and demand is growing.
• The top three producers control over 60% of the DOC breeding market, with CPIN and JPFA holding 50% of the market share.

5. Capacity Expansion

• All three major producers plan to expand their feed mill and DOC breeding capacities by 10-15% in the next two years.
• This indicates strong demand for poultry products and supports the positive outlook on the sector.

6. Price Volatility and Margins

• DOC selling prices are highly volatile, fluctuating between IDR2,000/DOC and IDR6,000/DOC depending on the season.
• Feed producers benefit from bundling DOCs with feed products, creating invisible barriers to entry.
• Chicken farming operates under perfect competition, with many small farmers controlling local supply.

7. Processed Chicken Growth

• Processed chicken products are expected to grow at 20% CAGR over the next two years due to urbanization and changing consumer preferences.
• CPIN leads in the processed chicken market with 60% market share, but its revenue from this segment is only 8% of total, suggesting significant growth potential.

Key Producers and Their Ratings

Stock	Rating	Market Cap (USDm)	Last Price (IDR)	TP (IDR)	Upside (%)
Charoen Pokphand	BUY	5,894	4,235	4,950	16.9
Japfa Comfeed	BUY	1,441	1,595	1,850	16.0
Malindo Feedmill	BUY	517	3,600	4,350	20.8

Summary of Key Drivers

• Rising minimum wage and economic growth drive higher meat consumption.
• Beef price increases push consumers towards chicken as an affordable alternative.
• Stabilization of IDR and low raw material prices improve margins.
• Strong brand equity, distribution networks, and after-sales service create barriers to entry.
• Capacity expansion by major players supports long-term growth.
• Processed chicken demand is rising, especially in urban areas.

Risks

• Disease outbreaks.
• Sharp fluctuations in feed prices.
• Extreme spikes in raw material costs could impact profitability.

Valuation and Performance

• Malindo Feedmill has better working capital days and a strong earnings growth profile.
• Charoen Pokphand has high exposure to the processed chicken business.
• Japfa Comfeed has less demanding valuations but is more exposed to raw material price volatility.

Conclusion

The Indonesia poultry sector is poised for growth due to rising demand and margin recovery, with Malindo Feedmill as the top recommendation. The industry is supported by cultural preferences, economic trends, and capacity expansion plans. Despite the risks, the sector offers strong long-term potential.