Ovostar egg production slides 0.6% yoy in 1H19

Ukraine egg producer Ovostar Union (OVO PW) reported
that its 1H19 shell egg production slid 0.6% yoy to 782 mln units, according to
its July 22 trading update. The company’s total hen flock rose 2.7% yoy to 7.6
mln and the laying hen flock increased 4.8% yoy to 6.5 mln.

The company’s shell egg sales declined 10.2% yoy to
610 mln units and its egg export volume increased 14% yoy to 335 mln units in 1H19.
Its shell egg prices declined 9% yoy to USD 0.063/unit in 1H19. Ovostar
processed 293 mln eggs and sold 7,035 t of liquid egg products (20% growth yoy)
as their export volume increased 20% yoy to 3,481 t in 1H19. The sales of dry
egg product decreased 26% yoy to 1,030 t and export volumes dropped 27% yoy to
714 t in 1H19.

In 2Q19, the company’s egg production decreased 1.2%
yoy to 396 mln units (or a 2.6% growth qoq). Shell egg sales dropped 21% yoy to
268 mln units (and 10.2% decrease qoq), while export volumes increased 26% yoy
to 197 mln units (and 14% growth qoq) in 2Q19. The average price of shell eggs
was USD 0.055/unit in 2Q19, which is 12% lower yoy and 20% weaker qoq.

Andriy Perederey: The
company’s decline in shell egg sales was driven by weak domestic sales in 2Q19.
As a result, the share of shell egg exports jumped to 74% in 2Q19 from 46% a
year ago. The increased exports allowed the company to avoid a significant
decrease of the average realized egg price, as egg prices in Ukraine fell by
about 33% yoy in 2Q19, we estimate. Nevertheless, due to weaker prices, we
expect a significant weakening in Ovostar’s financials in 2Q19,  keeping
our neutral view on Ovostar stock.