This has prompted the research unit at MIDF Amanah Investment Bank to call a “buy” on QL Resources Bhd and maintain its “neutral” call on rival Leong Hup International Bhd.
Agriculture and food security minister Mohamad Sabu announced yesterday that there will no longer be price control for chicken and eggs. He said export restrictions would also be lifted.
The change is likely to lead to an increase in the prices of both items.
In Peninsular Malaysia, the retail price of standard chicken is now capped at RM9.40 per kg. Grade A eggs now retail at 45 sen each, while it is 43 sen for Grade B eggs and 41 sen for Grade C eggs. The subsidy for eggs will end on June 30.
MIDF Amanah research analyst Genevieve Ng said the removal of the ceiling price for both items was a positive development for the sector.
She said a tight supply of eggs in Malaysia could lead to an increase in prices in the near term, both domestically and internationally.
The global outbreak of avian flu has also led to a reduction in the supply of eggs in other countries, and this could push up prices of eggs exported from Malaysia.
However, Ng said, the price of chicken should not see a substantial increase even after the cap has been removed.
She said the removal of a ceiling price would also give companies dealing in poultry and eggs more breathing room and greater flexibility in responding to changes in input costs.
She notes that the recent decline in the futures contract prices for soybean meal and corn would only help to offset increases in labour and electricity costs.
For soybean futures, the price declined 1.8% year-on-year (y-o-y) in May while that for corn saw a significant withdrawal of 29.4%.
Ng singled out QL Resources and Leong Hup as key beneficiaries of these developments.
MIDF’s target price for QL Resources is RM6.75 while that for Leong Hup is 50 sen.
She said there would be no change in earnings forecast for livestock players covered by MIDF pending more details on the lifting of the price cap.
At 10.43am, Leong Hup’s share price was up 1% to 50.5 sen, giving it a market capitalisation of RM1.84 billion.
However, the share price of QL Resources was down 0.19% to RM5.30, giving it a market capitalisation of RM12.9 billion.