The broiler price returned to c.IDR18k/kg in Aug after a slump in Jul. The current corn price remained high at around IDR5.5k/kg while entering the second minor harvest season this year. Our top pick is JPFA as the company would have advantages from the rebound of DOC and broiler prices that will cover the sluggish feed segment.

DOC and broiler price recovered. After the demand disruption from the emergency PPKM and absent culling in May during the Ied season, the broiler and DOC price had fallen to c.IDR14k/kg and c.IDR4k/bird in Jul, respectively. However, as the supply adjustment continues and the demand from restaurants and wet markets stabilizes, the broiler and DOC prices recovered to c.IDR18k/kg and c.IDR5.6k/kg, respectively in Aug. We expect higher prices in Sep as the price in the first week of Sep reached above IDR19k/kg. The increases should cover the operating loss from the segment in Jul.

Pressure from the high corn price. The corn price (water content 15%) had been sticky at above IDR5k/kg since Apr, as feed players reportedly took an average of IDR5.5k/kg in Aug according to our channel check. We also project the second minor corn harvest season in Sep – Nov 21 would have a limited impact on lowering the corn price to below IDR5k/kg. Thus, we expect a lower 3Q21 feed margin compared to the same period last year as the feed players could not increase the feed ASP as fast as the corn price.

Back to routine supply adjustment. The government has issued the seventh circulation letter to adjust the chicken supply in Aug to reduce 89M of the DOC FS from a potential full supply of 290M DOC FS. The impact would be felt in Sep - Oct with our broiler price projection of IDR19k – IDR20k/kg for incoming months.

Maintain Overweight outlook on the sector. We maintain our Overweight outlook on the poultry sector as the slowdown in Jul was only temporary with the challenge of the new normal of the high corn price of above IDR5k/kg.