Agribusiness – What’s on the menu in 2023F?

• Global grain and palm oil price cooling down in 2023F will have positive impact to meat and edible oil producers’ gross margin.
• Meanwhile, we expect sugar and rice producers will benefit from rising price of domestic sugar and export rice.
• We like BAF and put DBC, QNS, and KDC in our watchlist.

Cost pressure ease, gross margin rebound in FY23F across segment

Global grain prices are likely to decline in FY23F thus we expect animal feed cost would cool down gradually. This will benefit to animal feed, meat producers and fisheries thanks to lower input price for animal feed. Meanwhile, we expect raw palm oil price to decline 8% yoy in 2023F, which ease pressure from higher material costs on edible oil producers. Therefore, we expect these producers to enjoy gross margin rebound in FY23F thanks to material cost pressure ease.

Rice and sugar price likely on the rise

We believe domestic sugar price will be supported in 2023F by the tailwind of new Decision on the anti-dumping tax in Aug 2022. Besides, Vietnam’s rice exports will benefit from India rice exports restriction. With higher duty, Indian rice price will become uncompetitive and likely prompt buyers to shift towards Thailand and Vietnam. Thus, we expect rice and sugar producers to enjoy higher GM across the board thanks to increasing output price.

Potential impact of stronger US$ on Vietnam agribusiness

Stronger US$ has put pressure on US$/VND exchange rate, making US$/VND rate on the interbank rise to the highest level in history. In our view, rising exchange rate will have different effects on producers. Rice and seafood exporters are likely key winners, enjoying higher export price. Meanwhile, there is potential negative impact for edible oil, meat, dairy and sugar producers.

Our stock pick is BAF while DBC, QNS and KDC will be on our watchlist

We see BAF as a relatively defensive pick with earnings growth of 16.2% over FY23-24F and encouraging profitability (ROE >15%) among the rising cost-push inflation and tightening capital market. Meanwhile, QNS will be added on our watchlist as QNS could benefit from the sugar price upward trend. We also put KDC and DBC in our watchlist as KDC’s growth potentials already priced in while weak NP growth in FY22 may affect DBC’s share price in short term.

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