Ovostar egg production slides 3% yoy in 9M18

Ukrainian egg producer Ovostar Union (OVO PW) reported
that its 9M18 shell egg output decreased 3.4% yoy to 1,202 mln units, according
to Oct. 25 operating update. The company’s total hen flock fell 7.6% yoy to 7.3
mln heads and laying hen flock slid 4.4% yoy to 6.5 mln at the end of 9M18.

The company’s shell egg sales increased 27.4% yoy to
1,056 mln units in 9M18 and its egg export volume rose 26.6% yoy to 443 mln
units. Its average shell egg prices advanced 35% yoy to UAH 1.79/unit in 9M18.
Ovostar processed 401 mln eggs and sold 8,867 tons of liquid egg products (47%
yoy growth), while its export sales jumped 77% yoy to 4,325 tons. The company’s
sales of dry egg product increased 3.9% yoy to 2,157 tones, while export
volumes improved 11.7% yoy to 1,572 tons in 9M18.

In 3Q18 alone, the company’s egg production increased
3.5% qoq to 415 mln units, while shell egg sales climbed 11.9% qoq to 377 mln
units. The company’s shell egg export decreased 4.5% qoq to 149 mln units,
while domestic sales improved 26.0% qoq to 228 mln units. The average price of
shell eggs was UAH 1.67/unit in 3Q18, which was 0.9% higher qoq.

Andriy Perederey: The
company’s egg sales increase was driven mainly by boosted domestic sales in
3Q18, and the share of domestic sales was 60% vs. 54% in 2Q18. But the company
is still showing strong sales results in both its domestic and export markets,
which is supported by high selling prices (about USc 6.6/unit, according to our
estimates).

We expect the company’s revenue will rise by about
55% yoy to USD 93 mln in 9M18. But the recent laying hen flock reduction –
prompted by requirements to adjust upkeep conditions to EU standards – could
have a negative impact on the company’s EBITDA margin, which is our point of
worry. So we remain neutral on Ovostar stock, but expect a positive market
reaction to the company’s strong operating results.