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New Straits Times
05-05-2025
- Business
- New Straits Times
Modest price impact projected as egg subsidy winds down
KUALA LUMPUR: The partial removal of egg subsidy effective this month before the full phasing out in August will provide some comfort to investors and poultry stocks, said industry observers. They also said the government's move to remove egg subsidies stems from a stabilised supply and a current oversupply in the market. Shares of most poultry stocks such as PWF Corp Bhd, Lay Hong Bhd and Leong Hup International Bhd rose after the egg subsidy was reduced by half effective from May 1. Last Friday, PWF rose to 82 sen from 79.5 sen on a volume of 445,500 shares, valuing the company at RM260.65 million. Lay Hong edged up one sen to 34.5 sen, with 3.8 million shares changing hands, pushing its market capitalisation to RM261.5 million. Leong Hup recorded the highest trading activity among poultry counters, gaining 1.5 sen to close at 64 sen with 12.3 million shares traded. The company now has a market capitalisation of RM2.34 billion. QL Resources Bhd, the largest among poultry counters, remained unchanged at RM4.80 despite 3.4 million shares traded, maintaining a market cap of RM17.52 billion. Price Downtrend Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said average egg prices have been on a downward trend. As of February, he said the average prices of hen's egg grade A, B and C dropped to RM4.40 per 10 eggs, RM4.20 per 10 eggs and RM4.00 per 10 eggs respectively. "This represents a decline of 11.2 per cent, 13.0 per cent and 11.8 per cent year-on-year respectively. "Clearly that this has opened up the window of opportunity for the government to remove the subsidies since the prices are on a downward trend," he told Business Times. Afzanizam noted that companies in the egg production industry seem to be performing well despite the decline in average selling prices. He pointed out that Leong Hup recorded a net profit of RM428.93 million for the financial year ended December 2024, up from RM301.74 million the previous year. "Agriculture and Food Security Minister Datuk Seri Mohamad Sabu has indicated that his ministry is reviewing the current subsidy structure and if rationalised, it would allow a monthly savings of RM100 million to the government. "In a grand scheme of things, timing to roll out such subsidy rationalisation also matters with the prevailing average prices on a declining trend," he added. Motivation and Diversification Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan said removing the subsidies provides motivation for the industry to be more competitive and diversify its egg offerings. He explained that the previous price ceiling had limited the industry's ability to grow and expand. "Overall, I believe it's a positive step for the industry. For consumers, yes, there will be a price increase, but we also cannot rely on subsidies forever, it costs the government nearly RM1 billion a year to subsidise eggs. "This move benefits all parties: consumers, the industry and the government, which can now redirect that RM1 billion to other more practical and important needs," Azmi said when contacted. He said the move can also reshape industry operations as producers are now able to turn a profit without the limitations of a price ceiling, allowing them to innovate and introduce a wider range of egg varieties. "Previously, the price gap hindered competitiveness and innovation. With this change, profit margins will improve - but it depends on how the industry responds and innovates moving forward. "The end of this subsidy, which if we can read it more properly, the end of the price gap of eggs, will create a more competitive and efficient industry with more variety of eggs for consumers to choose from," Azmi added. Azmi cautioned that the government should move carefully when withdrawing other food subsidies, as food prices are a key factor in calculating inflation. "If subsidies are removed too quickly, food prices may spike, driving inflation higher. So the government must carefully assess which food subsidies to end, and when," he said. Impact on Margins Tradeview Capital fund manager Neoh Jia Man said the removal of the egg subsidy could negatively affect the profit margins of larger producers that have been reliant on subsidies. "While these producers may attempt to raise prices to offset the loss, the current oversupply in the market could limit their ability to do so," he added. Neoh said the subsidy removal is unlikely to create clear beneficiaries, noting that pure egg producers such as Teo Seng Capital Bhd, TPC Plus Bhd and LTKM Bhd are likely to be among the hardest hit. "We also do not anticipate any positive spillover effects. In fact, the combination of oversupply and subsidy withdrawal may prompt producers to rationalise output over the medium term, potentially leading to reduced logistics volumes from the sector," he added. In its statement last Wednesday, the Agriculture and Food Security Ministry said highlighted that nearly RM2.5 billion was spent on egg subsidies between February 2022 and December 2024. The previous subsidy was set at 10 sen per egg, with ceiling prices capped at 42 sen, 40 sen and 38 sen for Grade A, B and C eggs respectively. This translated into retail prices of RM12.60, RM12.00, and RM11.40 per tray of 30 eggs. Modest Price Increase? TA Securities said based on the Department of Veterinary Services data, retail egg prices ranged from 42-46 sen each between July and October 2022, when subsidies were not in place. Since eggs continue to be the most affordable source of protein, the firm expects the price impact from the full subsidy removal in August 2025 to be modest. It estimates an increase of only two-four sen per egg, mainly driven by cost pass-throughs rather than fundamental changes in supply or demand. As such, the firm forecasts retail egg prices to remain rangebound around 41-45 sen per egg in the near term, similar to 2022 levels when the 5.0 sen subsidy was still in effect. TA Securities noted that Malaysia's annual egg consumption averages 11.6 billion units, translating to about 968.0 million eggs per month. On the supply side, production reached 16.7 billion eggs in 2023, reflecting a 15.8 per cent yea-on-year increase, indicating a healthy oversupply in the market. The country's poultry egg self-sufficiency ratio has consistently exceeded 100 per cent, it added. It expects supply to remain resilient despite the subsidy withdrawal, with demand continuing to hold firm as eggs remain the most cost-effective protein source for consumers.
Free Malaysia Today
30-04-2025
- Business
- Free Malaysia Today
‘Eggs-traordinary' boost for Malaysian poultry stocks
The removal of egg subsidies is the latest step in the government's fiscal consolidation efforts. PETALING JAYA : Poultry stocks saw a boost in their share prices today following the government's announcement it is scrapping price control and subsidies for chicken eggs under its subsidy rationalisation initiative. Teo Seng Capital Bhd and PWF Corp Bhd spiked as much as 8% each, Lay Hong Bhd rose 6% while CCK Consolidated Holdings Bhd edged up 4%. However, the news had muted effect on the large-cap poultry companies. QL Resources Bhd ticked up 0.6% while Leong Hup International Bhd rose 0.8%. QL and Leong Hup are valued at RM17.5 billion and RM2.26 billion, respectively. In contrast, Teo Seng, PWF, Lay Hong and CCK have market capitalisation ranging between RM250 million and RM840 million. The agriculture and food security ministry announced this morning the government will end price control on eggs effective on May 1 as part of its phased subsidy retargeting. Subsidies on eggs will be halved to five sen from 10 sen per unit, before being fully scrapped on Aug 1, 2025. The removal of egg subsidies is the latest step in the government's ongoing fiscal consolidation efforts. 'The government has also taken into account that prolonged price control and subsidy is unsustainable for the local egg producing industry as well as the country's fiscal health,' the ministry statement said. The government initially planned to float egg prices in July 2023 but postponed the move due to concerns about potential price increases and the impact on consumers. It had spent close to RM2.5 billion between February 2022 and December 2024 for subsidies on eggs to help producers cope with rising costs of soybean and corn following the Covid-19 pandemic and Ukraine-Russia conflict. To minimise the impact on cost of living, the government will undertake intervention measures including introducing a new grade of reasonably priced eggs and stepping up enforcement to curb profiteering and price manipulation.
