THIS month is notable for publicly traded poultry companies, as two of them announced their intention to focus on other businesses. Both are selling their poultry businesses and the move is an indication of the challenges facing the industry.
One of the main problems remains the high cost of animal feed, which is in turn due to the global increase in the prices of soybeans and corn.
Two weeks ago, loss-making chicken egg producer LTKM Bhd proposed a reverse takeover exercise, where the company’s existing poultry business would be divested to its major shareholders and the listed entity would be controlled by an electronics manufacturing services or EMS player.
LTKM operates an automated layer farm in Melaka with over two million chickens on multi-tiered housing systems that produce over one million eggs per day.
LTKM Executive Chairman Datuk Tan Kok said the proposed divestment comes amid a difficult operating landscape for the poultry industry caused by overcapacity, low average egg selling price, high raw material prices, difficulty in controlling epidemics on farms and acute labor shortages.
LTKM incurred losses for the years ended March 31, 2020 through 2021 and for the nine months ended December 31, 2021.
The group notes that its financial performance has declined in recent years as its core poultry segment has suffered from low selling prices for broiler chicken coupled with an increase in the cost of poultry feed.
“Unlike the poultry segment, the real estate development segment was the largest contributor to the group’s profit for the year ended December 31, 2021,” SMCAP pointed out in its filing with Bursa Malaysia.
SMCAP says the proceeds from the sale would be used for the group’s expenses on its existing Taman Gambir Perdana mixed development project in Johor.
Adding to the pressure on poultry players is the government’s recent decision to cap the price of chickens and eggs for periods of time to give consumers breathing space from inflation in poultry prices.
Some of these companies have other companies parked under the listed entity.
Lay Hong’s main business is the mass production of chicken eggs, liquid eggs, chilled and frozen dressed chicken, chicken parts and processed chicken products such as frankfurters, nuggets and fried chicken.
Lay Hong has three business segments, namely integrated breeding, feed manufacturing and retail.
For the nine months ended December 31, 2021, Lay Hong reported a net loss of RM23 million compared to net profit of RM10.6 million a year earlier, although revenue was up slightly by 3. 1% year-on-year to RM708 million.
The group says the losses in the period were due to the decline in production of processed chicken products due to shortages of raw materials and labor, coupled with the average selling price or ASP of table eggs. which remained stable.
High commodity prices have also squeezed its profit margins.
Lay Hong notes that it returned to profitability during the third quarter ended December 31, 2021 due to cost containment and improved ASP of eggs and livestock.
Lay Hong also points out that the government in February agreed to provide subsidies to farmers.
“With these subsidies in place, the group will be able to temporarily mitigate rising costs and meet consumer demand,” says Lay Hong.
Meanwhile, Teo Seng is involved in the poultry farming and marketing of chicken eggs, the manufacturing and marketing of animal feed, egg trays, fermented organic fertilizers, and the distribution of food and pet medicines, and animal health products.
For its financial year ended December 31, 2021, the group’s net profit fell 28.4% year-on-year to RM3 million, although revenue rose 10.8% to RM530.1 million.
According to Teo Seng, despite the increase in revenue due to the improvement in the selling price of eggs, its bottom line was impacted by the still high prices of raw materials such as corn and soybeans.
LHI is one of the largest fully integrated poultry, egg and livestock feed producers in Southeast Asia.
For 2021, LHI reported a 24.5% year-on-year decline in net profit to RM85.4m (vs. RM113.15m in 2020), impacted by rising costs raw materials which outpaced the increase in livestock feed ASP, although revenue rose 18.4% to a record high of RM7.15 billion.
LHI Group Executive Director and CEO Tan Sri Francis Lau said the company is pursuing several initiatives such as expanding its aquatic feed products and integrating its farm-to-fork business.
AmInvestment Bank Research said in a recent report that LHI’s longer-term outlook for earnings recovery remains intact, based on the return of demand from hotels, restaurants and cafes as the economy reopens.
“Expanding its business-to-consumer downstream channel to other countries of operation beyond Malaysia could further reassess LHI’s earnings,” the research unit says.
Meanwhile, the Lowy Institute, a think tank based in Sydney, Australia, says in a recent report that disruptions to crops and fertilizer production have driven up food prices since the start of the Russian conflict. -Ukrainian at the end of February, as world wheat prices rose by 21%, barley by 33% and some fertilizers by almost 40%.
“Both countries produce grains that are used in everyday products, including breakfast cereals, breads, pasta and corn syrup, as well as subsistence products such as animal feed. , which means that the price of chicken and pork should also increase,” says the thinker. Tank.
Recently, VietNamNet Global also reported that over the past year, the prices of raw materials for animal feed production in Vietnam have risen sharply from more than 20% to 50%.
The online news provider adds that millions of chicken farmers and hundreds of thousands of pig farmers in Vietnam also face higher bran prices and freight rates.