PETALING JAYA: Integrated poultry company, PWF Corp
Bhd, has good earnings prospects despite lower subsidies from the government, thanks to higher chicken prices and lower feed costs.
This trend is expected to underpin expectations of attractive dividend payouts by the company over the medium term.
According to Apex Securities, PWF’s dividend yield is expected to be 5.1% this year and 5.7% in 2025.
“The group has consistently maintained a dividend payout ratio averaging 30% to 40% of their net profit over the years,” the brokerage said.
“We expect a decent dividend payout, supported by an anticipated stronger bottom line and cash inflows from government egg subsidies,” it added.
Apex Securities pointed out the abolishment of price controls and subsidies for chicken by the government was a positive development for poultry producers like PWF.
“The move allows broiler farmers greater flexibility to adjust prices in response to changing market conditions,” it explained, noting chicken prices had increased from RM5.90 per kg in the fourth quarter of 2023 (4Q23) to around RM7 per kg in 2Q24.
It said resilient and rising chicken prices are expected to boost PWF’s earnings.
Further, with lower feed costs, PWF’s margins are expected to improve in the coming quarters.
“The prices of soybean and corn, a major inputs for feed, have declined due to favourable global supply conditions.
“As feed costs constitute around 70% of PWF’s production expenses, any changes are expected to impact margins,” Apex Securities said.
“Reduction in cost pressure on these commodities prices benefits PWF’s feedmill operations, leading to reduced input costs,” it added.
PWF received subsidies of RM66.2mil and RM45.3mil for broilers and eggs in 2022 and 2023, respectively.
Apex Securities estimated that with the abolishment of chicken subsidies, the group could receive lower subsidies from the government at around RM26mil to RM27mil for 2024 and 2025.
“Despite the reduction in government subsidies, we forecast stronger core net profit growth driven by several factors – higher chicken prices; lower feed costs due to weakening commodity prices and strengthening ringgit against the US dollar; and higher margins from the increased contribution of functional eggs,” it explained.Apex Securities ascribed a target price of RM1.22 for PWF, a non-rated stock under the house, based on a price-earnings ratio (PER) of eight times to the forecast core earnings per share of 15.2 sen for 2025. The valuation is in line with peer forward PER.
“We favour PWF for to its position as a pure-play integrated poultry company supported by in-house feedmill plant, positioning as a direct beneficiary of low commodity prices and higher chicken prices,” it said.
