Ovostar egg production rises 22% yoy in 1H17

Egg producer Ovostar Union (OVO PW) reported its 1H17
egg production rose 22% yoy to 815 mln units in its operating results released
on July 21. The company’s total flock increased 9% yoy to 7.9 mln and laying
hen flock advanced 12% yoy to 6.7 mln hens.

Its shell egg sales rose 9% yoy to 518 mln units,
while its egg export volume swelled 29% yoy to 186 mln in 1H17. Ovostar’s shell
egg prices rose 3% yoy to UAH 1.30 per unit in 1H17.  The company
processed 237 mln eggs and sold 4,863 tons of liquid egg products (11% yoy
growth) and 1,173 tons of dry egg products (27% yoy growth) in 1H17.

In 2Q17 alone, the company’s total flock improved 2.5%
qoq and laying hen flock was flat qoq. Egg production rose to 411 mln units (an
increase of 17% yoy and 2% qoq), while shell eggs sales amounted to 242 mln
units (12% less yoy and qoq).  Shell egg exports rose 38% yoy and 27% qoq,
but domestic sales of shell eggs fell 30% yoy and 29% qoq in 2Q17. The average
price of shell eggs was UAH 1.19 per unit in 2Q17, which is 4% weaker yoy and
12% weaker qoq.

Andriy Perederey: The company
is continuing its gradual expansion of egg production and shell eggs exports,
yet it can’t prevent the decline of average egg prices, which means profit
margins will further narrow in 2Q17. In 2H17, we expect some increase in
domestic egg prices, which will allow Ovostar’s production expansion to pay
off.

While we see a risk of some equity price weakness
following publication of recent results, we are keeping our positive view on
the equity of Ovostar, the least leveraged and one of the most fundamentally
stable companies in Ukraine’s investment universe.