Meat production sector – Swine price shows positive signals

• Domestic swine price recovered 5.3% mom in Arp after decreasing 6th month in a row.
• We expect meat producers to record better results from FY23F regarding higher average swine price and lower input cost.
• Our stock pick is BAF while DBC will be on our watchlist

Domestic swine price recovers in Arp 2023

After a sharp decline in 1Q23, domestic swine price showed positive signals when starting to increase slightly from the beginning of Apr 2023 (+5.3% mom/+0.1% ytd) but still 3.5% lower than the same period last year. We see some reason for the recovery in swine recently as 1) the sell-off of pig production on the market as the herd affected by African swine fever (ASF) has decreased gradually and 2) concerns of oversupply have cooled down due to farmers suspending re-herd and meat producers hesitate to expand production scale.

We expect swine price to improve from 2Q23F

We do not see any constraints in swine supply, thus we expect pork prices to increase slightly in 2Q23 and improve more clearly in 3Q23 when domestic demand recovers. In base case, we expect swine prices to rise 5% yoy to VND59,000kg in 2023F, thanks to the recovery of China pork price when its economy re-opens, which can partly affect domestic price and lower supply from farming households.

…meanwhile commodities price be more favorable for meat producers

We expect global agricultural products price to remain downward trend in 2023F as 1) supplies of most food commodities increase due to improved yields, 2) the ongoing Ukraine supply return to the global markets and 3) weakening demand response to the slowdown in the global economy. As actual material import price is 3-6 months lagged compared with the global price movements, we expect animal feed costs would cool down gradually from 2Q23F. Therefore, we expect meat producers’ GM to improve average by 2% pts yoy in FY23F.

Our stock pick is BAF while DBC will be on our watchlist

BAF has long term growth potential thanks to expanding the herd capacity with new farms and distribution system through Siba Food supermarkets and Meat shops. The company will raise capital for its expansion plan through issuing VND600bn of private bonds to the International Finance Corporation (IFC) in 1Q23. Meanwhile, DBC will be on our watch list. Downside risks include 1) higher-than-expect key material price for animal feed production, 2) weaker-than-expect meat demand, 3) lower-than-expect swine price.

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