Cheap eggs may be history as prices head higher

KUALA LUMPUR: Malaysian consumers could face higher egg prices in the coming months, with supply constraints, weather disruptions and farm shutdowns driving a sharp market turnaround after years of surplus, according to Hong Leong Investment Bank Bhd (HLIB).

Prices are set to rise further over the next three to six months, reversing a prolonged period of oversupply and depressed farm-gate rates that followed the full withdrawal of government egg subsidies.

The tightening market is already reflected in rising producer prices. Top integrated poultry player QL Resources Bhd forecasts the upward trend will persist, HLIB analyst Jonathan Ooi said in a recent research note.

Grade C egg prices, which dipped to around 20 sen in April and May, recovered to roughly 33 sen by end-June and surpassed 40 sen in August, lifted by Perak farm closures and rising feed costs, he said.

"Management expects egg prices to further increase over the next three to six months but remains cautious as the same feed inflation pressures QL's own cost base, with corn and soybean meal already more than 10 per cent higher year-to-date and cheaper inventory providing a two month buffer on our estimation," he said.

El Nino conditions are adding modest headwinds, Ooi said.

Heat stress is lowering layer hen productivity, particularly at open-air farms, with QL describing its impact as neutral to slightly negative, he said.

Strategically, the group aims to grow branded eggs to 25 per cent of egg revenue within five years, from about 18 per cent currently.

Ooi said the retail premium is significant. Branded trays at Jaya Grocer fetch roughly 80 sen per egg versus 40 sen for standard unbranded equivalents, though QL's actual producer-level margin is narrower after accounting for retailer markups, packaging, and enhanced feed for omega-3 varieties.

"Management indicated that its Malaysia operations will focus on efficiency and mix, while Indonesia and Vietnam carry the capacity-growth runway, and Vietnam's losses are expected to narrow as egg prices recover," Ooi said.

While El Nino is a marginal headwind for the egg business, it is proving beneficial for QL's marine products manufacturing (MPM) division, creating a favourable earnings mix for the group, he said.

MPM revenue rose 18.2 per cent year-on-year, while pre-tax profit surged 51.5 per cent, with management attributing most of the roughly RM30 million year-on-year earnings increase to stronger fishmeal performance.

The gains came as Peru's reduced anchovy catch tightened the global fishmeal supply. Peru accounts for roughly one-fifth of global fishmeal production and in August cancelled its main anchovy fishing season after landing only 25 per cent of an already reduced quota.

Fishmeal prices in July remained about 11 per cent above the average recorded during QL's 1QFY27, supporting expectations of higher realised average selling prices in 2QFY27.

With MPM accounting for 38 per cent of group pre-tax profit, the division is expected to be a key swing factor for QL's FY27 earnings.

Ooi expects the next two quarters to mark the peak of the current cycle, supported by seasonally stronger fish landings.

The key indicator will be Peru's second fishing season in November, which should determine whether the supply squeeze extends into FY28 or begins to ease.

Ooi said the contrasting impact of El Nino creates an underappreciated earnings asymmetry for QL.

Warmer waters can push pelagic fish closer to the surface in Malaysian and Indonesian waters, making them easier to catch, while Peruvian anchovies retreat deeper. This allows QL to benefit from higher global fishmeal prices without a corresponding reduction in its own fishing volumes.

''El Nino cuts in QL's favour, an asymmetry which we think is underappreciated," Ooi said.

"QL therefore captures the full global price uplift without a corresponding fishing volume reduction. Although El Nino is also a modest drag on layer productivity at open farms, the mix works in QL's favour," he said.

The earnings contribution of the two businesses has also shifted significantly.

Ooi said MPM and ILF were almost equal contributors to QL's pre-tax profit in FY26, accounting for 38 per cent and 39 per cent, respectively.

However, the fishmeal windfall lifted MPM's contribution to about 54 per cent of group pre-tax profit in 1QFY27, while ILF's contribution fell to 32 per cent.

"The comparison that matters is the mix in force while the event is ongoing, and on that basis, the segment that El Nino benefits carries 1.7x the weight of the one it hurts," Ooi said.

HLIB maintained its "Buy" call on QL with a target price of RM5.10, based on a 38-times price-to-earnings multiple, its five-year pre-pandemic mean, applied to FY27 earnings.

"We remain constructive on QL, given that MPM is delivering into a supply shock with further runway into FY27 and did so in a seasonally soft quarter with the stronger quarters still ahead," Ooi said.