Bright outlook for livestock farming industry

A Hoang Anh Gia Lai JSC's swine farm. Livestock farming firms are forecast to perform well in 2023 on grounds of rising pork prices and mounting meat demand. Photo cafef.vn

HÀ NỘI — The outlook for the livestock farming industry is bright in 2023 despite its lower-than-expected earnings in 2022.

Listed firms in the industry had a tough year dealing with the mounting fuel prices caused by the Russian-Ukrainian conflict.

Higher fuel prices drove up transport costs, which, in turn, passed on to higher animal feed prices. As animal feed is an important input to animal agriculture, its rising prices added to their bills, driving down their profits.

Specifically, their aggregate net profits in the first nine months of 2022 fell by 6.2 per cent year-by-year. Their aggregate revenues were harder hit, witnessing a fall of 31 per cent.

The situation began to turn around in Q3/2022 as the demand for meats rose. The rise in sales was large enough to offset the rise in costs, resulting in higher profits.

Hoang Anh Gia Lai JSC (HOSE: HAG) was taking the lead in terms of financial performance during the period. It made a revenue of VNĐ1.4 trillion (US$61.4 million), up 160 per cent year-by-year. Its net profit stood at VNĐ369.5 billion, increasing seventeen-fold against last year.

BAF Vietnam Agriculture JSC (HOSE: BAF) came next with a revenue of VNĐ1.9 trillion. Its net profit hit VNĐ158 billion, up 260 per cent year-on-year. Dabaco Group (HOSE: DBC) followed suit with a revenue of VNĐ3.6 trillion, up 33 per cent, and a net profit of VNĐ206 billion, up 49.5 per cent. 

Vietnam Livestock Corporation JSC (UPCOM: VLC) also did well in Q3/2022. It raked in VNĐ78.3 billion in net profit, up 10.59 per cent. Vissan JSC (UPCOM: VSN), likewise, posted a net profit of VNĐ31 billion. 

Masan MeatLife Corporation (UPCOM: MML) was the only firm operating in the industry running unprofitably in Q3/2022. It made a net loss of VNĐ98 billion due to a nosedive in animal feed sales. 

The securities firm VnDirect has an optimistic outlook for the industry. It forecast that firms would be riding high on the back of higher pork prices and growing meat demand in 2023.

Specifically, pork prices are expected to rise by 5.0 per cent during the period as a result of a tight pork supply. Accounting for 60 per cent of the national pork output, household swine farms were reluctant to raise new hogs amid the high animal feed prices, causing the shortage.

The same goes for meat demand, which is expected to remain high thanks to the governmental wage-rising scheme in mid-2023 and the full recovery of tourism in the late months of the year.

VnDirect estimated that basic wage rates would increase by 20.8 per cent in July. Additionally, the number of foreign tourists to Việt Nam would recover to 84 per cent of its pre-pandemic levels in Q2 and 100 per cent in Q4. These two favourable factors would give a huge boost to firms' revenues.

But the good news goes only as far. VnDirect was concerned that the rise in exchange rates between USD and VNĐ would pass through to animal feed prices, adding to firms' costs. The pass-through effect is considerable because firms have to import 80 per cent of their animal feed. 

A BAF representative forecast that the situation would be better in 2023 than in the past two years because major importers have begun to open their economies, leading to a growth in global meat demand.

However, the representative was also concerned that transport costs would keep rising this year, adding to animal feed prices. That means firms still have a hurdle to overcome before they could turn the higher demand into higher profits.