Food Commodities sector – A mix bag in 2023

• We expect agricultural products and whole milk powder price to cool down in 2023F.
• However, we still see some commodity prices keep stay in high level such as sugar and rice.
• Our stock pick is BAF while LTG and SBT will be on our watchlist.

We expect the food commodities price index keep declining in 2023F

We see some key factor could favor food producers in 2023-2024 such as 1) overall weather condition will be more favorable for key agriculture products, 2) the transportation cost will decrease significantly when the global shipping supply has fully recover from 2021/22 disruption, and 3) fertilizer price will decrease significatnly. Thus, we expect the food commodities price index to remain downward trend, with most key products will see 6.1%-6.7% yoy decrease in 2023 average price except for coconut oil and rice.

Meat and milk producers will improve gross margin thanks to lower input cost

We expect spot animal feed price will cool down gradually from 2Q23F, which will support meat producers’ GM in the context of domestic live hog demand still weak. Meanwhile, we expect whole milk powder price to cool down in 2023F (-5.0% yoy) thanks to lower import demand from China and global dairy demand is likely to get weaker in the short term. Therefore, we expect these producers to enjoy gross margin rebound in FY23F thanks to material cost pressure ease.

While sugar and rice will continue to enjoy high selling price

We believe domestic sugar price will remain high in 2023F thanks to the the anti-dumping tax while inventories of cheap imported sugar in 2022 also gradually decrease. Besides, Vietnam’s rice export will benefit from 1) India rice exports continued restriction, 2) world demand for rice remain high, 3) Vietnam is focusing on producing high-quality rice to meet global consumption trends. Thus, we expect rice export price and domestic sugar price to surge 3.9%/4.0% yoy, promissing another good year for rice and sugar producers.

Our stock pick is BAF while LTG and SBT 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, LTG and SBT will be on our watch list. Downside risks include 1) higher-than-expected agricultural products price, 2) lower-than-expected domestic consumption, and 3) unfavorable weather could affect domestic agricultural production.

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