High-Flying Chicken Prices Lift Southeast Asia's Top Stock

(Bloomberg) -- Shares of PT Charoen Pokphand Indonesia have more than doubled this year, besting Southeast Asian peers, thanks to higher prices for chickens.

The almost 130 percent rally in CP Indonesia so far in 2018 ranks it No. 1 on the MSCI Asean Index. Indonesian poultry producers have recently been able to charge more for the day-old chickens they sell to broiler farms for meat production, helping improve their profit outlooks. PT Malindo Feedmil and PT Japfa Comfeed Indonesia have seen share-price gains of more than 50 percent each, while the national benchmark Jakarta Composite Index has declined 3.6 percent.

“Tighter supply has led to a strong rally in day-old chicken prices, while sales volume in the industry remains strong,” said Jemmy Paul, CEO of Sucorinvest Asset Management. “Relatively stable costs have led to improvements in margins.”

CP Indonesia is expected to book a record profit this year, with its highest net profit margin in five years, according to analyst estimates compiled by Bloomberg. Sales for the Indonesian unit of Thai conglomerate Charoen Pokphand Group are seen rising 3.6 percent to 53.1 trillion rupiah ($3.6 billion) with net income surging 79 percent to 4.4 trillion.

While the bottom line has certainly improved, some analysts say the rally in CP Indonesia’s shares may be overdone. The gain has pushed the stock above the highest analyst price target. Marlene Tanumihardja, an analyst at Samuel Sekuritas, said higher corn prices may start to dent the company’s financial performance in the first quarter of 2019.

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Kurt Schussler, Teo Chian Wei

©2018 Bloomberg L.P.