Strategy Note /

Singapore's chickens come home to roost

  • Singapore’s national dish – chicken rice – is getting more expensive as the global food crisis hits home

  • As chicken prices rise, investors should consider Asian producers such as CPF, Japfa, Charoen Pokphand Indonesia

  • The Asian chicken stocks were revalued in the previous bout of severe food inflation, in 2008-12

Singapore's chickens come home to roost
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
6 June 2022
Published byTellimer Research

Chicken rice is a famous dish in Singapore and an affordable staple for many. Singapore is one of the richest countries in the world, but a chicken rice serving can cost as little as US$2.75, which is around a mere 8% of the average hourly wage (US$35).

However, chicken rice lovers received a serious blow this week as Malaysia, which supplies most of Singapore’s chickens, banned the export of live birds in order to protect its own supplies. This could drive the price of processed chicken much higher.

Consumers globally are already finding that chicken meat is getting more expensive, driven by the increase in the price of its main input – corn – which is up 23% YTD.

Singapore's chicken rice problems are symptomatic of the global food inflation crisis. We urge investors to consider branded chicken producers in Asia – higher food prices would be positive for Asian stocks such as CPF TB, JAP SP, JPFA IJ and CPIN IJ.

Four reasons to look at branded Asian chicken producers

1) Food inflation could actually support chicken volumes. Chicken is the cheapest form of animal protein. If higher input prices lead to inflation in pork, beef and mutton, chicken consumption stands to gain. The feed conversion ratio shown in the chart below is a measure of the amount of feed required to produce a unit of meat – chicken’s ratio is the lowest.

Feed Conversion Ratio

2) The case for chicken is not just a volume story. However, as the region becomes richer, we estimate that branded products (as a proportion of sales volume) will increase to 25-35% in 2018-21 from 10-15% in 2022-24. Branded products could be sought after even in an inflationary situation.

3) The key Asian chicken stocks are trading at a sharp discount to their 15-year PE average.

Chicken Stocks P/E

4) Chicken stocks were revalued during the previous episode of severe food inflation, in 2008-12. Their PE multiples rose two-fold as they were viewed as a solid bet.

We urge investors to consider these four counters as potential beneficiaries of the food crisis.