Indonesia Daily Focus December 11, 2020
Poultry (Overweight) - Prospect for 2021: Government’s continuous massive intervention to support recovery
We
believe the case of recovery for Poultry sector is increasingly likely
as the government shows stronger commitment to continuously intervene
the market in order to curb supply and maintain broiler and DOC price at
a reasonable level.
Aside
from that, we see that demand for chicken is unlikely to weaken further
from here regardless of how good or bad the pandemic is and how PSBB
status development will evolve in the months ahead. We believe that
demand has declined significantly due to the major drop in activity of
restaurants, hotels, and events this year. Hence, the current chicken
demand represents demand from daily individual consumption, which is
improbable for people to reduce spending on daily staple food.
That
said, Poultry sector might be primed for stellar earnings growth in
2021 after experiencing deep slumps in 2020 earnings. We expect JPFA and
MAIN to have higher earnings growth.
We
think the sector deserves valuation re-rerating, justified by: 1)
recent steady price recovery, supported by government to continuously
curb supply, more firmly signals that sector recovery in 2021 continues
to take shape; 2) aggressive earnings growth outlook due to the low base
in 2020; and 3) possibly market re-rating tailwinds.
We
upgrade our sector view to Overweight and shift our top pick to JPFA
due to the following reasons: 1) Higher earnings growth outlook due to
2020 low-base effect, coupled with additional earnings coming from the
newly acquired subsidiary SGF; 2) more attractive margin expansion
during recovery; and, 3) its wide valuation gap with CPIN may provide
attractive upside potential for the share price.
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