EQUITY RESEARCH

Poultry Sector Update - 12 December 2019

CIPTADANA SEKURITAS ASIA

Neutral Poultry
Remain cautious in spite of more favorable condition

Sector Poultry Broiler price somewhat lower in Nov-19, but DOC price rises by 10.1% MoM
West Java DOC Nov-19 prices declined by 10.8% YoY, yet soared by 10.1% MoM to
Bloomberg Ticker JAKBIND Rp5,950/chick. We believe strengthening DOC prices on monthly basis was partly
attributed to mandate of government to reduce FS DOC by cutting fertilized HE (Hatching
Share Price Performance Egg). Despite of continued price recovery, we think the supply of DOC in 4Q19 will not as
tight as the same period last year. Meanwhile, livebird or broiler price on the farm gate in
Last price 977.5
Nov-19 was slightly up by 2% YoY to Rp18,660/kg, yet somewhat contracted by 0.3% MoM.
Moreover, seeing from average 11-month basis, both DOC and broiler prices in 11M19
decreased by 3.2% YoY and 11.4% YoY, respectively. In our view, toward the end of the
year, we foresee the poultry integrators will see more stable broiler and DOC prices given
52w High/Low price 988/685 more manageable supply-demand condition.

Mkt. Cap (Rpbn/USDmn) 773,329/55,257 Another mandate of government appears, yet still not satisfies the small-sized farmers
th
At the end of Nov-19, government circulated the 7 supply adjustment in which actually
3m 6m 12m
had started in the beginning of December-19. Through the circular letter, the government
Absolute (%) 7.2 26.7 15.8 orders poultry players to reduce aged 19 days fertilized HE by 5 mn eggs per week or
totaling 20 mn eggs in a month. Nevertheless, it seemed the numbers of egg that need to
Relative to JCI (%) 9.4 28.2 14.5 be cut was not come as expected by the poultry farmers. This even lower compared to the
previous statement of Director from Ministry of Agriculture that mentioned about another
culling of 7 mn eggs/week in December-19 (28 mn eggs in a month). As such, we believe
small sized farmers will remain suffer if the broiler price do not see further upswing.
1,200 20% Nonetheless, for the big poultry integrators, we think government culling programs are
1,000 15% really supportive to ease the pressure on their margins.
10%
800 Indonesia sees drought, corn harvest potentially delay
5%
600 On the brink of climate change, Indonesia has witnessed severe drought; and the dry
0% season has been drier compare to 2018. Hence, due to rainfall deficit, if apparently the
400 growing and planting of corn in Indonesia has been delayed to December-19; the harvest
-5%
200 period will happen in around March-20. Moreover, a concern of farmers has arisen
-10%
eventually, whether the existing domestic supply can sufficiently fulfill the demand for
0 -15% corn. According to Chairman of the National Corn Council, corn production this year is flat
Dec-18

Oct-19
Nov-19
Dec-19
Jan-19

Jun-19
May-19

Jul-19
Feb-19
Mar-19
Apr-19

Aug-19
Sep-19

at 12 mn tons, underpinned by low level of productivity. We view the statement lead us to a

conclusion that reliance on domestic corn production may affect the price of corn within
JAKBIND 1yr Rel. to JCI (RHS)
end of Dec-19 until Feb-20 timeframe. We think government has to anticipate the condition
by proactively issuing corn import quota like what has already happened in late 2018.
Even so, the action of government to intervene should be earlier before the corn price
spike to above Rp6,000/kg. Above all, we see poultry integrators will less likely face
pressure from corn price in 4Q19 as they have build up their stockpile. Yet, if the issue of
corn shortage in Indonesia hit the headline in the beginning of 2020, we deem this as the
potential headwind for the share prices of CPIN, JPFA and MAIN.

Maintain NEUTRAL stance on Indonesian poultry

Overall, we maintain our Neutral stance on Indonesia poultry sector. Despite of series of
culling programs given by the government this year, we remain cautious with next year
Fahressi Fahalmesta condition. In 2020F, we agree with more favorable supply-demand condition compare to
2019F, but it will be tough to achieve cherries performance like in 2018. Amplifying level
+62 21 2557 4800 ext. 735 of monitoring of government by putting Attorney General of Indonesia to oversee the
agriculture performance and prevent any violation in agriculture sector is one of the
fahalmestafahressi@ciptadana.com positive factors as well. Conversely, negative constraints that stand as another rational of
our recommendation comprise of elevating GPS import quota, slightly slowing
consumption growth next year, and the high bargaining power of middle-man (part of
http://www.ciptadana.com distribution chain between integrators and consumers).

Exhibit 1: Rating and Valuation

Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F 20F (%) 20F (%)
CPIN IJ HOLD 107.0 6,525 5,750 (11.9) 32.1 26.0 19.8 16.3 17.2 1.5
JPFA IJ BUY 16.6 1,560 2,100 34.6 13.0 10.7 6.9 6.0 14.6 2.3
MAIN IJ HOLD 2.3 1,035 950 (8.2) 9.4 8.6 6.2 5.6 10.8 2.0
Weighted Avg. Neutral 29.2 23.7 17.8 14.7 16.7 1.6
Source :Bloomberg and Ciptadana
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 EQUITY RESEARCH
Poultry Sector Update - 12 December 2019
CIPTADANA SEKURITAS ASIA

Exhibit 2: Series of supply adjustment in 2019

Culling Period Mandate
st
1 adjustment 21 March - 8 April 2019 Reduce FS DOC broiler production by 10%
nd
2 adjustment 26 June - 9 July 2019 Cull PS broiler aged over 68 weeks (chick in before 12 March 2018)
Reduce FS DOC broiler by withdrawing hatching eggs aged 19 days by 30% fertile eggs from
3rd adjustment 28 June - 12 July 2019 hatchery (this applied for PS broiler breeding company that produces FS DOC to Central Java
region)
4th adjusment 2 - 20 September 2019 Reduce aged 19 days fertilized HE with a total 10 mn/week
2 - 7 September 2019 Distribute 10 mn HE through CSR program
23 – 29 September Reduce aged 19 days fertilized HE with a total 10 mn/week (1st extension)
30 September – 6 October Reduce aged 19 days fertilized HE with a total 5 mn/week (1st extension)
23 September – 22 October Cull PS broiler aged over 60 weeks. Total: 3,039,927 (2nd extension)
7 October - 26 October 2019 Reduce aged 19 days fertilized HE with a total 5 mn/week (2nd extension)
5th adjustment September - December 2019 Distribute 100 mn HE through CSR program (GEMA)

6th adjustment 5 - 30 November 2019 Reduce FS doc in Java island by cutting 19 days fertilized HE with a total of 2 mn eggs per week

22 October - 31 December 2019 Continue the culling PS broiler aged over 60 weeks
7th adjustment 1 - 31 December 2019 Reduce aged 19 days fertilized HE by 5 mn/week
Source : Directorate General of Livestock and Health, Ministry of Agriculture and Ciptadana

Exhibit 3: broiler and DOC price in November (West Java area)

November'14 November'15 November'16 November'17 November'18 November'19

DOC price (in Rp/chick) 1,905.0 4,530.0 4,745.0 4,445.0 6,667.0 5,950.0
YoY Growth 137.8% 4.7% -6.3% 50.0% -10.8%
Livebird price (In Rp/kg) 14,082 17,993 15,635 17,295 18,288 18,660
YoY Growth 27.8% -13.1% 10.6% 5.7% 2.0%

Nov'19 Oct'19 MoM 11M19 (avg.) 11M18 (avg.) YoY

DOC price (in Rp/chick) 5,950.0 5,403.0 10.1% 5,251.3 5,423.6 -3.2%
Livebird price (In Rp/kg) 18,660.0 18,722.0 -0.3% 17,245.1 19,457.8 -11.4%

Source : West Java and Ciptadana

Exhibit 4: Quarterly average of DOC and broiler price

Source : West Java and Ciptadana

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Poultry Sector Update - 12 December 2019
CIPTADANA SEKURITAS ASIA

EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYST

Arief Budiman
Strategy, Automotive, Heavy Equipment,
Construction, Oil & Gas and Shipping
T +62 21 2557 4800 ext 819
E budimanarief@ciptadana.com
Erni Marsella Siahaan, CFA Yasmin Soulisa
Banking Property, Plantations
T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799
E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com

ECONOMIST ANALYST ANALYST

Nicko Yosafat Fahressi Fahalmesta Robert Sebastian
T +62 21 2557 4800 ext 820 Cement, Toll Road, Poultry Retail, Healthcare
E yosafatnicko@ciptadana.com T +62 21 2557 4800 ext 735 T +62 21 2557 4800 ext 760
E fahalmestafahressi@ciptadana.com E sebastianrobert@ciptadana.com

ANALYST ANALYST ANALYST

Gani Thomas Radityo Muhammad Fariz
Telco, Tower, Media Coal, Metal Mining Consumer, Cigarette
T +62 21 2557 4800 ext 734 T +62 21 2557 4800 ext 795 T +62 21 2557 4800 ext 740
E gani@ciptadana.com E radityothomas@ciptadana.com E farizmuhammad@ciptadana.com

TECHNICAL ANALYST RESEARCH ASSISTANT

Trevor Gasman Sumarni
T +62 21 2557 4800 ext 934 T +62 21 2557 4800 ext 920
E gasmantrevor@ciptadana.com E sumarni@ciptadana.com

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 EQUITY RESEARCH
Poultry Sector Update - 12 December 2019
CIPTADANA SEKURITAS ASIA

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