Agribusiness: Potential impact of global food prices hike on Vietnam producers

• Global food prices rise for 10th month in a row.
• Rice exporters and sugar producers are likely key winners, in our view.
• Our stock picks under this theme are QNS, LTG, DPM, and DCM.

Global food prices rise for 10th months in a row

According to the Food and Agriculture Organization (FAO), the global food price index surged 2.1% mom in Mar and reached its highest level since June 2014. Supply side disruption, stockpiling and the weakening US dollar could be attributed to recent uptick in food prices. This uptrend is expected to keep on climbing due to: (1) adverse weather threats the crop outlook in 2021; (2) the robust demand fueled by the stronger-than-expected recovery of China.

Rice exporters, sugar and fertiliser producers are likely key winners

We observed that Vietnam rice and sugar prices have rallied 18.6%/31.8% ytd following the global food price hike. Thus, we expect rice and sugar producers to enjoy higher GM across the board in upcoming quarters. Additionally, sugar producers will benefit from the tailwind of new Decision on the anti-dumping tax. Other potential indirect beneficiaries are fertiliser producers since demand is growing as farmers tend to tke advantage of food prices uptrend.

However, there is potential negative impact for dairy, animal feed, edible oil, and meat producers

Most of Vietnam producers have to import whole milk power, cereal and oil for dairy, animal feed, and edible oil business. Thus, we believe these producers will face challenges on higher material input cost. Animal feed price hike is negative to meat produces meanwhile swine price is forecasted to soften about 19% yoy in 2021 from African swine fever level.

Our stockpicks under this theme are QNS, LTG, followed by DPM and DCM

We favor LTG and QNS as they are self – sufficient for raw materials input and could enjoy higher selling price. We believe LTG is well – positioned to take advantage of the upward price trend since its sales volume is secured by its annual orders coming in Feb, Jun, and Sep. Though higher soya price is slightly negative to QNS, the company could enjoy the twin tailwinds of new Decision on anti-dumping tax of Thailand imported sugars and the sugar price hike. We expect the negative impact of higher crude oil prices and positive impact of increase fertilizer demand will partially cancel each other out, leaving a small positive impact for DCM and DPM.

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