The Russia-Ukraine war has thus far tightened global chicken supply given Europe’s sizable chicken imports from Ukraine. Despite a further rise in raw material prices sparked by the Russia-Ukraine war, we believe that its locked-in raw material costs through 2Q22 will sustain a decent GM amid the high livestock meat price situation in 1H22. Our TRADING BUY stands, premised on its 2022 earnings jump, a QoQ core operational turnaround in 1Q22 and its cheap valuation—2022 PER of 12.9x (against its recent PER high of 17.3x in Dec 2021).
Tighter global chicken supply caused by the Russia-Ukraine war
Given that Europe (incl. UK) and the EU (excl. UK) imports roughly 13% and 20% of its total chicken import volume from Ukraine, we believe that the recent Russia-Ukraine war has led to tighter European and global industrywide chicken supply. Moreover, the widespread bird flu outbreak in Eastern and Western Europe has restricted the chicken imports from the European countries infected with the bird flu, which has aggravated the tightening global chicken supply situation. TFG’s mean 4Q21 chicken export price was $2,925/tonne, up a solid 15% YoY and 10% QoQ. Its mean export price to Europe jumped 21% QoQ (to $3,400/tonne in 1Q22) and will rise a further 12% to $3,800/tonne in 3Q22. Due to a surge in chicken demand from countries reopening, tighter global supply and a partial cost-push impact from the new highs of feed costs (i.e. corn, soybean meal and wheat), we expect TFG’s mean chicken export price to rise 10% YoY in 2022 (to $2,900/tonne).