IT may not be at par with regional poultry giant Leong Hup International Bhd but illiquid and low-profile mainland Penang-based integrated poultry player, PWF Corp Bhd, is certainly a hidden gem in its own right.
Year-to-date, PWF’s share price has climbed 13% from 57 sen on Dec 31 last year to 64.5 sen as of yesterday (June 2) – which in a way has outpaced the total return of FBM KLCI and the FBM Small Cap Index of -2.24% and 4.32% respectively.
Part of the reasons for PWF Corp’s strong 1H 2021 performance could be attributed to to the recovery of broiler prices which has benefitted the poultry industry.
Since 2H 2020, average selling prices (ASPs) for broiler has seen a recovery trend with prices mostly trading above RM4.50. In contrast, ASPs for broiler fell to a low of RM3 in April 2020 at the height of the COVID-19 pandemic.
While broiler ASPs have stabilised in April and May 2021 amid the implementation of the festive season maximum price control scheme for the Hari Raya festivity (April 21 to May 20), the ASP upcycle is likely to be sustainable in the near-term following supply adjustments.
With the price control scheme coming to an end, the ASPs for broilers are expected to sustain a moderate growth for the rest of 2021 which would boost PWF Corp’s earnings. This has already started to be reflected in the group’s financial results for 1Q FY2021.
During that timeline, the group’s bottom line saw a turnaround with a net profit of RM3.14 mil from a net loss of RM3.85 mil in the same period a year ago. The turnaround is in line with a 2.3% rise in revnue to RM90.4 mil from RM88.4 mil in 1Q FY2020.
In its Bursa Malaysia filing, PWF Corp attributed its improved financial performance during the quarter to higher broiler ASP.
On a quarter-on-quarter (qoq) basis, however, the company’s net profit contracted 48% from RM6.06 mil in 4Q FY2020. The weaker performance on a qoq basis was mainly due to the fair value gain on investment properties and biological assets recognised in the previous quarter.
Excluding the fair value gain, PWF Corp’s earnings would have maintained a stronger growth on a qoq basis, indicating that the growth momentum was sustained into the first quarter of this year.
Growth prospect
The momentum growth is also seen by the increase of 10.0% in its revenue on a qoq basis to RM90.42 mil in 1QFY2021, from RM82.23 mil in 4Q FY2020.
The sustained momentum and higher ASPs for broilers will boost PWF Corp’s earnings and could eventually drive the group to record its first earnings growth since 2017. The group’s net profit has been on a decline since 2017 in line with the oversupply condition at that time.
Recall that poultry ASPs were hit with an influx of poultry meat from Brazil in 2019 amid the oversupply situation that was seen in 2018. This has caused the broiler ASP to fall to RM3.85 in 1Q FY2019, the lowest level seen since 2014. The COVID-19 pandemic outbreak further affected the ASPs.
Given its reliance on ASPs of broilers to boost its financial performance, PWF Corp earnings are poised for a turnaround alongside the recovery of broiler ASPs.
Aside from the positive outlook for PWF Corp’s earnings in FY 2021, the group’s valuation is also at an attractive level, trading at a trailing price-to-earning (PE) ratio of 12.8 times. In comparison, the five-year average trailing PE for PWF Corp stands at 14.4 times.
Above all else, PWG Corp is also trading at a much lower valuation than other poultry players such as Leong Hup (trailing PE: 16.78), Lay Hong Bhd (trailing PE: 65.3), CAB Cakaran Corp Bhd (trailing PE: 27.57) and Teo Seng Capital Bhd (trailing PE: 147).
Coupled with a potential earnings recovery in FY2021, investors are starting to pay attention on the development of the group. Trading volume in 2021 has been on the uptrend as evident yesterday (June 2) with 146,200 shares traded as opposed to the stock’s one-year average of 128,330.
While the recent resurgence of COVID-19 pandemic coupled with the total lockdown measure may pose a downside risk to the group’s recovery, the poultry industry which falls under the essential busienss category is still able to operate albeit with a lower staff strength which may slightly impact its production output.
However, as Malaysia continues to accelerate its vaccination programme in its quest to achieve herd immunity – and with the global economy is starting to show signs of recovery – investors’ expectations of a turnaround for the group might be on the horizon.
At the close of today’s morning session, PWF Corp was up 0.5 sen or 0.77% to 65.5 sen with 46,300 shares traded, thus valuing the company at RM118 mil. – June 3, 2021
