Bursa poultry sector boom and bust trends

Case Notes 35. Malaysian Poultry Industry: The untold story of boom, bust, and recovery! The data are meant to serve as base rates when analysing poultry and egg companies

The Malaysian poultry industry has undergone significant changes over the past decade. This was shaped by economic cycles, global market dynamics, and government policies. 

This article examines the sector's performance from 2013 to 2024 based on Bursa’s poultry and egg companies. It provides a comprehensive analysis of key financial and operational metrics that can serve as base rates.

By leveraging base rates, this study offers a comparative perspective on how individual companies have fared against industry benchmarks. It explores trends in revenue, profitability, return on invested capital (ROIC), and financial stability. 

Additionally, the article highlights the industry's evolving landscape, including challenges such as feed cost volatility and regulatory pressures, as well as opportunities in automation and sustainability.

Whether you are an investor, industry professional, or policymaker, this analysis provides valuable insights into the resilience and prospects of Malaysia’s poultry and egg sector.

Contents

• Sector summary

• Industry background

• Base rates

• How to use the base rates

• Hunting for Poultry Companies

• Methodology

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Sector summary

The performance of the sector from 2013 to 2024 is summarized below. These were based on 11 companies under the Bursa Malaysia poultry sector. 

The Total Capital Employed and Total Assets of the sector grew at about 10% CAGR over the past 12 years can be seen from the left part of Chart 1. 

Chart 1: Sector Size and Performance Index Trends (based on median)

While the sector revenue grew at 8.4 % CAGR from 2013 to 2024, PAT growth was much higher at 20.9 % CAGR. 

But as can be seen from the right part of Chart 1, the sector profit declined in 2020/21 due to the pandemic. At the same time, there was hardly any growth in gross profitability. 

In tandem with the PAT results, the sector ROIC and ROE reached the bottom in 2020/21 and have since increased. The returns in 2024 are about 2 to 3 times higher than those in 2013.  

However, the improving returns do not seem to be driven by gross profit margin expansion or reduction in Selling, General, and Administration (SGA) margins. Refer to the right part of Chart 2. 

Chart 2: Sector Returns and Margins Trends (based on median)

The sector's financial performance has improved over the past 12 years. The DE ratio today is lower than that in 2013. At the same time, there is a more significant cash flow from operations over the past few years compared to that in 2023.

Chart 3: Sector DE ratio and Cash Flow from Ops Trends (based on median) 

The right part of Chart 4 shows that over the past few years, the EPS of the sector companies has improved. While there is not been much change to the contribution margin, there was an improvement in the EBIT margin and Levered Free Cash Flow margin.

Chart 4: Various Margins and EPS Trends (based on median)

Industry background

The Malaysian poultry and egg industry has grown significantly since the 1960s, transforming from small-scale backyard farming to a highly integrated and technologically advanced sector. 

The industry’s expansion was driven by increasing domestic demand for affordable protein sources, government support, and advancements in farming techniques. Today, Malaysia is self-sufficient in poultry meat and eggs, with some surplus exported to regional markets like Singapore.

The sector remains a vital component of Malaysia’s food security and economy. While it faces challenges such as rising costs and regulatory pressures, opportunities exist in export growth, automation, and sustainability initiatives. 

Key Characteristics

• Highly integrated supply chain. Large-scale players dominate, with operations covering breeding, hatcheries, feed production, farming, processing, and distribution. 

• Self-sufficiency. Malaysia produces nearly 100% of its domestic poultry and egg consumption, with per capita poultry consumption among the highest globally.

• Cost sensitivity. Poultry and egg prices are heavily influenced by feed costs, as Malaysia imports most of its corn and soybean meal.

• Government regulation. The sector is subject to price controls, subsidies, and biosecurity regulations, particularly during supply disruptions and disease outbreaks.

• Export potential. Although domestic consumption is the primary focus, Malaysia exports poultry products to Singapore and is looking to expand into Middle Eastern and other Asian markets.

Challenges and Issues

• Feed cost volatility. High reliance on imported feed ingredients exposes farmers to global commodity price fluctuations.

• Disease risks. Outbreaks of avian influenza and other diseases pose biosecurity threats, requiring strict preventive measures.

• Price controls and subsidies. Government intervention, such as ceiling prices for chicken and eggs, can squeeze profit margins for producers.

• Labour shortages. The industry relies on foreign labour, and tightening regulations on foreign worker employment presents operational challenges.

• Environmental. Waste management, antibiotic use, and sustainable farming practices are growing concerns among regulators and consumers.

Opportunities for Growth

• Exports. Strengthening Malaysia’s position as a halal-certified poultry exporter, particularly in high-demand markets like the Middle East and China.

• Vertical integration and automation. Investments in automation and digital farming can enhance efficiency and reduce reliance on labour.

• Alternative feed sources. R&D in alternative protein sources, such as insect-based feed and locally grown crops, can reduce dependency on imported feed.

• Value-added products. Increasing demand for ready-to-eat and processed poultry products presents opportunities for product diversification.

• Sustainability. Adoption of eco-friendly farming methods, such as cage-free egg production and improved waste management, can align with global trends and attract premium markets.

You can get a bit more insight into the Malaysian poultry sector from the blog article “Is PWF an investment opportunity?”

Global perspective

The global poultry meat market was valued at approximately USD 350 billion in 2023 and is expected to grow at a CAGR of 3% to 5% over the next decade. The egg market, valued at around USD 230 billion, is also experiencing steady expansion. 

Key factors driving this growth include:

• Growing population and urbanization.

• Shift toward white meat. Poultry is seen as a healthier alternative to red meat.

• Efficiency. Faster production cycles and lower feed conversion ratios compared to other livestock.

• Rising demand for processed & value-added products.

The poultry industry is dominated by a few key players:

• United States. The world's largest poultry producer, accounting for over 15% of global output. 

• China. The largest egg producer globally, with significant domestic poultry consumption.

• Brazil. A leading exporter, supplying chicken to over 150 countries, including halal markets in the Middle East.

The poultry industry operates on thin margins, with major cost drivers including:

• Feed costs of 50-70% of production costs. 

• Labor costs & automation. Developed markets increasingly rely on automation to offset high wages.

• Biosecurity & disease control: Avian flu and other diseases pose risks to supply chains and trade.

The global poultry and egg sector continues to expand, driven by affordability, efficiency, and adaptability. Companies that focus on cost control, innovation, and sustainable practices will be best positioned for long-term success. 

As Malaysia aims to strengthen its position as a halal-certified poultry exporter, it can leverage global trends in automation, value-added processing, and ESG compliance to compete effectively in international markets.

Base rates

As of early 2025, there were 11 companies under the Bursa Malaysia poultry and eggs sector. The base rates here refer to the performance of 11 of these companies from 2013 to 2024. Refer to the Methodology for the selection of the companies. 

The profile of these 11 companies in terms of the Total Capital Employed and Total Assets are shown in Chart 5. 

You can see that there has been some growth in the capital and the corresponding assets. Over the past 12 years:

• The median Total Capital Employed grew at 9.9 % CAGR.

• The median Total Assets grew at 10.3 % CAGR.

However, the larger companies as represented by the upper quartile performance experienced a much higher growth rate. 

Chart 5: Total Capital Employed and Total Assets Trends

Profitability

You can see from Chart 6 that the sector experienced a declining return from 2014/15 to 2021 before reversing this trend. The positive sign is that the returns in 2024 are much higher than those in 2013. 

Chart 6: ROIC and ROE Trends

The return pattern mirrors that for the PAT as shown in the right part of Chart 7. The interesting pattern is that while revenue had steady growth since 2013, profits were more volatile with steeper growth post-2021. 

Chart 7: Revenue and PAT Trends

Comparing Charts 7 and 8, I am more inclined to conclude that the growth in PAT was driven by revenue growth rather than margin expansion or cost reduction. You can see that the median and lower quartile margins (both gross profit and SGA) over the past year or so were comparable to those in 2013. 

The relatively stagnant gross profit margins and SGA margins imply that cost reductions were not a major driver of profitability.

Chart 8: Gross Profit Margin and SGA Margin Trends

I have earlier mentioned the growth rates for capital. When you compare these with the PAT growth rates, you will find that the PAT CAGR over the past 12 years was about double those for the capital. 

For example, from 2013 to 2024, the median Total Capital grew at 9.9 % CAGR. The median PAT grew at 20.9 %. You not be surprised to find that the growth rate for the ROIC was much higher than that for profits.

Financial position

The sector has improved its financial position over the past 12 years.

• Generally, the DE ratio in 2024 is much lower than that in 2013. More significantly, the median DE ratio over the past 12 years was less than 60%.

• The 2024 cash flows from operations are also much higher than those in 2013.

The declining DE ratio suggests a more conservative capital structure over time. This could mean companies in the sector are either financing growth more through retained earnings or reducing reliance on debt due to cost pressures.

Chart 9: DE ratio and Cash Flow from Operations Trends

Capital efficiency

I considered 2 metrics here – gross profitability and asset turnover.

Gross profitability is an indicator introduced by Professor Robert Novy-Marx. According to him, gross profitability has roughly the same power as book-to-market in predicting the cross-section of average returns. 

Looking at Chart 10, while gross profitability for the large companies improved, there were no such improvements in the asset turnover. There did not seem to be any significant improvements in the capital efficiency especially for the median and lower quartile companies. 

Chart 10: Gross Profitability and Asset Turnover Trends

Valuation metrics

In valuing companies, you need to model the future Free Cash Flow to the Firm. I rely on several metrics for this – revenue, contribution margins, and Reinvestment rate. Sometimes I use the EBIT margin instead of the contribution margin. 

The left part of Chart 11 shows that despite some volatility, there have not been many changes in the contribution margin over the past 12 years. EBIT margin on the other hand was more volatile with the 2024 margins much higher than those in 2013. 

Chart 11: Contribution Margin and EBIT Margin Trends

From a valuation perspective, there were uptrends in the Levered Free Cash Flow margin and EPS, especially post-2021. It suggests that the sector has become more valuable over time. Refer to Chart 12.

Chart 12: Levered Free Cash Flow Margin and EPS Trends

The past 12 years' mean Reinvestment rate for the sector was 45 %. I defined Reinvestment rate = Reinvestment/NOPAT.

Reinvestment = CAPEX + Acquisitions – Depreciation & Amortization + increase in Net Working Capital.

Table 1: Reinvestment rate

How to use the base rates

When analysing a company or making projections, Daniel Kahneman’s concepts of the inside view and outside view offer a useful way to think critically about your assumptions.

• The inside view is based on your knowledge, experience, and reasoning. It focuses on the specific situation at hand, without considering how similar situations have played out in the past. This often leads to overconfidence or unrealistic expectations, as people tend to believe their case is unique.

• The outside view takes a step back and looks at the bigger picture. Instead of relying only on personal judgment, it considers the actual experiences of others in similar situations. This approach helps ground expectations in reality.

When analysing a company, relying too much on the inside view can lead to overestimating growth potential or underestimating risks. To counter this, you should incorporate the outside view. This is where base rates come in.

Base rates provide historical data on how similar companies or industries have performed. They act as a benchmark to test whether your assumptions are reasonable.

For example:

• If you are evaluating a company’s expected growth, looking at the industry’s average performance can help you determine whether your projections are realistic.

• If a company is undergoing a turnaround, base rates can indicate the typical success rate of turnarounds in that industry. This helps you assess the likelihood of recovery.

By using base rates, such as industry averages and interquartile ranges, you improve the accuracy and objectivity of your analysis. This ensures that your projections are not just wishful thinking.

Hunting for Poultry Companies

The Malaysian poultry sector has demonstrated resilience over the past decade, but not all companies have performed equally. Investors seeking opportunities in this sector must balance business fundamentals with valuation risks. This is where the Fundamental Mapper provides a powerful first-cut analysis.

The Fundamental Mapper plots companies on a Business Performance – Investment Risk matrix, allowing investors to quickly assess where companies stand based on their historical performance over the past six years. 

The Business Performance axis measures a company’s fundamental strength relative to its peers, while the Investment Risk axis gauges how the current market price compares to its intrinsic value.

Using this matrix, poultry companies fall into one of four quadrants. Refer to Chart 13 for the current map of the poultry and egg sector.

• Goldmine – Strong business fundamentals with undervalued stock prices.

• Gem – Strong business fundamentals but fairly or overvalued.

• Turnaround – Weaker fundamentals but potentially undervalued.

• Quicksand – Weak fundamentals and overpriced.

Chart 13: Bursa Poultry and eggs sector 24 Jan 2025

For investors, the goal is not just to identify companies based on their past performance but to project their future trajectory.

• For Goldmine companies, you want the business to remain the same or improve. This ensures their financial strength continues while the market eventually re-rates them, closing the valuation gap.

• For Turnaround companies, future performance must improve for them to become more attractive investments. A stronger business will not only increase its intrinsic value but also reduce investment risk - assuming market prices remain constant.

Once a company is identified, investors need to drill deeper to assess the likelihood of future performance improvements. This requires analysing factors such as cost structures, operational efficiency, and expansion potential. 

A key tool for this deeper analysis is the base rates provided in this article. By examining the historical financial and operational trends of the poultry sector, investors gain a realistic benchmark to assess individual companies. 

If a company's expected growth, margins, or returns deviate significantly from these base rates, it raises important questions. Is this company truly outperforming, or is there an over-optimistic assumption in the projections? 

Similarly, a company struggling below industry norms may indicate structural weaknesses or temporary setbacks that could present turnaround opportunities.

By starting with the Fundamental Mapper and cross-referencing with base rates, investors can efficiently narrow their focus. This ensures that detailed analysis is only conducted on the most promising poultry companies. The key to successful investing is not just finding undervalued stocks but identifying those with the strongest potential for sustained or improved performance.

Methodology

There are 11 companies under the poultry and egg sector in Bursa Malaysia in 2025 as listed below.

• CAB
• CCK
• LayHong
• Leong Hup
• LTKM
• Malayan Flour
• PPB
• PWF
• QL
• Teo Seong
• TPC

However, the data from 2013 to 2024 were not available for all. Leong Hup International data was only available from 2015. To cater to this, I used the median as the measure of central tendency rather than the mean. To measure the range, I used the lower quartile and upper quartile.

Refer to “How the Malaysian plantation sector performed over the past 10 years” for details on how I computed the median and quartiles. In this article:

• Q1 = lower quartile.

• Q3 = upper quartile.

The data for the base rates were extracted from the Financial Statements for each company for the period 2002 to 2024 from Tikr.com. Note that it is comprised of companies with different financial year ends. 

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If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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