Understanding the intrigue of the Malaysian poultry industry

MOST of us have consumed both chicken and eggs during our lifetime without much knowledge of how the poultry industry actually operates.

For a starter, there is a distinction between broilers which are raised for meat whereas layers are raised for table egg production.

An integrated poultry player would extend its farms across several generations (of chicken) to maintain steady source of new breeder and broiler/layer alongside operate downstream plants to slaughter, process and/or package the poultry produce.

Poultry product is often seen as the go-to high protein product in Malaysia as it is nutritional, cheap in cost and accepted by all religions.

“Nonetheless, the Malaysian poultry industry remains self-sufficient with production of chicken rising steadily across the year, supported by improved technologies and management techniques such as closed-house system with automation alongside advancement in poultry genetics,” wrote analyst Jeff Lye Zhen Xiong in a consumer sector update with focus on the poultry industry.

Malaysian farmers were able to produce circa 98% of the national demand for poultry meat and 115% of the national demand for chicken eggs.

As such, circa 9% of chicken meat and circa 7% of eggs produced are exported, giving farmers an additional sales channel. Majority of the exports are directed to Singapore.

Being one of the largest ASEAN pure-play poultry players, Leong Hup International Bhd (LHI) commands one-fifth of the Malaysian annual supply of day-old chicks (DOCs) as well as operates grandparents stock (GPS), parent stocks (PS) and broiler/layer farms in Malaysia.

In FY2020, LHI generated circa RM1.6 bil of revenue (equivalent to circa 7% of group’s revenue) via its livestock and poultry-related segment and feedmill business.

The company generated sales volume of 186 million DOCs, 59 million birds of broiler chicken, 1.44 billion units of eggs (via its circa 29% effective stake in Teo Seng Bhd) and 669,000 metric tonnes of livestock feed in Malaysia.

Meanwhile, QL Resources Bhd – another major poultry player – derived circa 40% of the group’s revenue through its broiler, layer, animal feed raw material trade and commercial feedmill business in Malaysia.

In terms of volume, QL generated sales volume of 22 million DOCs, 19 million birds of broiler chicken, 1.46 billion units of eggs and 1.2 million metric tonnes of animal raw material trade in Malaysia.

“Cost leadership and implementation of investment pacing plans would remain as the key strategies for both LHI and QL,” envisaged TA Securities Research.

“The companies generally seek to increase volume to thrive for greater economies of scale and enhance the level of automations in their respective facility to improve cost efficiency.”

Inevitably, vertical integration is also important to better control margin alongside improve brand awareness, according to the research house. – April 7, 2021

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