The recent ban on exporting live chickens- 3.6 million a month- from Malaysia to Singapore has been unprecedented. It shows the vulnerabilities of the supply chain issues for a country like Singapore which is highly dependent on others for their food and energy sources.
The current situation is due to the cap by the Malaysian government on chicken prices at RM8.90 per kg since Feb 5, 2022, which has led to losses or minuscule margins for the chicken breeders. This has affected the supply of chickens as some would rather not breed given a loss-making situation where costs of breeding have shot up due to the world’s inflationary environment.
The government did try to cushion and provided support to the breeders through a subsidy of RM730 million. However, to date, only RM50 million have been paid out.
The ban on Malaysia’s export to Singapore could help stabilise the prices of chickens in Malaysia as there is a good possibility that prices the breeders managed to secure from Singapore would be higher than the ceiling price set by the Malaysia government.
However, if prices are not set by market forces, sustainability would be questionable, especially with subsidies not efficiently handed out.
Source: The Straits Time
From the chart above, Malaysia should form the bulk of our live chicken supply due to the geographical and logistical aspects of the supply chain. Going forward, with a huge dent in the supply of live chicken stocks, we might have to make do with frozen chicken till the ban eases.
Cold Storage Industry Outlook
With the current food crisis and protectionism measures by countries, it would be good news for the cold storage industry as countries would be hoarding frozen supplies to deal with food supply issues. This would keep the facilities capacity highly utilised.
Even before the current situation, the growth prospect of the cold storage industry has been bright looking with expected annual growth north of 11%- Precedence Research has forecasted 11.6% annual growth from 2021 to 2030. Adding on a food crisis would provide necessary catalysts and tailwinds to meet and even surpass the forecast.
Source: Precedence Research
Source: Grand View Research
“The global cold storage market size was valued at USD 119.98 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 13.4% from 2022 to 2030. The market has benefitted significantly from the stringent regulations governing the production and supply of temperature-sensitive products. The industry is poised for unprecedented growth over the forecast period on account of growing organized retail sectors in the emerging economies. Moreover, rising automation in refrigerated warehouses is projected to boost the demand further.”
Source: Grandview Research
4 Stocks to Ride the Cold Storage Industry Trend
Americold Realty Trust
Americold is the world’s largest publicly traded REIT focused on the ownership, operation, acquisition and development of temperature-controlled warehouses. Based in Atlanta, Georgia, Americold owns and operates 249 temperature-controlled warehouses, with approximately 1.5 billion refrigerated cubic feet of storage, in North America, Europe, Asia-Pacific, and South America. Americold’s facilities are an integral component of the supply chain connecting food producers, processors, distributors and retailers to consumers.
Source: Americold Corporate Website
The first stock that has a direct play on the cold storage industry will be the largest REIT on cold storage that is listed publicly. We were not able to find another REIT that is primarily focused on this sector. We believe the secular uptrend, it will bode well with higher rental rates for their facilities and better utilisation rates which sit at under 80% currently. Prices of this stock have also been creeping up over the past 2 weeks which we will touch on in the charting angle section.
Nam Lee
Nam Lee Pressed Metal Industries Limited (“Nam Lee”or “Company”) has established itself as a one-stop specialist offering complete service in the designing, manufacturing and supplying of metal products and solutions for diverse industries in building, shipping container and infrastructure etc. It is currently one of Singapore’s leading providers of fabricated metal products and cutting edge metal solutions.
Nam Lee is an ISO 9001:2008 certified company and a Housing and Development Board (HDB) approved supplier and has been in the metal products fabrication business for over 60 years. The Group also has a long history in the manufacturing of aluminium frames for container refrigeration units and is the only worldwide third party supplier to a multi-national corporation which is the world leader in container refrigeration.
Nam Lee is a Building Construction Authority (BCA) registered contractor with unlimited tendering limits under the construction-related (CR) and Supply (SY) workleads. An established market player with firm quality standards, Nam Lee enjoys strong and long-standing relationships with its customers.
Source: Nam Lee Corporate Website
The proxy of Nam Lee to the cold storage industry equation is their manufacturing capability in the container refrigeration business where it plays a pivotal part in the whole cold industry supply chain. They are a supplier to United Technologies which is a major player.
Tyson Foods
Tyson Foods is a modern, multi-national, protein-focused food company producing approximately 20% of the beef, pork and chicken in the United States in addition to a portfolio of foods under the Tyson®, Jimmy Dean®, Hillshire Farm®, BallPark®, Wright®, Aidell’s® and State Fair® brands.
Tyson Foods is also the leading protein provider to many national restaurant chains, including quick service, casual, mid-scale, and fine dining restaurants. We make great food for a variety of food service customers, including schools, military bases, hospitals, nursing homes and international customers as well. We are also the only company that sells chicken, beef, pork, and prepared foods products through all major retail distribution channels, including club stores, grocery stores, and discount stores.
Source: Tyson Foods Website
The choice of Tyson is due to their business in frozen foods which could see an upsurge should a food crisis erupt. As frozen foods could be stored longer and would make an alternative to live foods, it could see a steady increase in business when protectionism is gaining pace.
Mapletree Logistics Trust
Mapletree Logistics Trust (“MLT”) is Singapore’s first Asia-focused logistics real estate investment trust. Listed on the Singapore Exchange Securities Trading Limited in 2005, MLT invests in a diversified portfolio of quality, well-located, income-producing logistics real estate in Singapore, Hong Kong SAR, Japan, China, Australia, South Korea, and Malaysia, Vietnam and India.
The Manager, Mapletree Logistics Trust Management Ltd., is committed to providing Unitholders with competitive total returns through the following strategies:
- optimising organic growth and hence, property yield from the existing portfolio;
- making yield accretive acquisitions of good quality logistics properties; and
- managing capital to maintain MLT’s strong balance sheet and provide financial flexibility for growth.
Source: MapleTree Logistic Trust Website
This is more of an indirect play as it only has minimal exposure to cold storage facilities in Australia and Korea but is only a small portion of their overall portfolio. Nonetheless, they could be building up their investments in this sector given the positive outlook.
Financial Metrics
| Stock/ Price | Price to Earnings | Price to Book | Debt to Equity | Dividend Yield | Return on Investment | Current Ratio | Price to Cash Flow | Market Capitalization |
| Americold/ $27 | – | 1.8 | 0.8 | 3.2 | – | 0.6 | 30 | USD 7.4 Billion |
| Nam Lee/ $0.35 | 5.7 | 0.53 | 0.12 | 4.23% | 9.2% | 3.39 | 12.8 | SGD 86 Million |
| Tyson/ $90 | 10.5 | 1.73 | 0.47 | 2% | 12.5% | 1.55 | 8.3 | USD 33 Billion |
| Mapletree Logistic Trust/ $1.62 | 14.6 | 1.12 | 0.76 | 5.5% | 5.33% | 0.68 | 15.2 | SGD 7.7 Billion |
Source: Morningstar
Taking a look at the financials, we gathered several insights into the companies after analysing their financial metrics.
The value play candidate from the list would be Nam Lee which is listed in Singapore with a PE of around 5 and trading at 0.5X to book value. It has also been consistently distributing dividends to shareholders through the years. The current dividend yield of 4.2% is relatively decent.
Tyson is still looking attractive fundamentally but has come up from the 60 levels over the past few months to their current 90 levels. We are not bottom fishing for sure as it is trading at near its all-time high.
Our preferred play on the cold industry sector would be Americold as it is the direct proxy and should have the most momentum if this theme moves into full swing. However, their financials are not a pretty sight and is not trading in the value zone.
With interest coverage of just 0.6, it makes us feel the level is too low to be comfortable. Moreover, their current weight average financing charge of 2.88% could see further upside in the future with the current trajectory of US interest rates. They are also just generating positive operating cash flow but not free cash flows (could be investing heavily to ramp up their asset base) which would imply to us they could be overly aggressive.
Not having earnings for a REIT is fine as long as their cash flow is healthy. This is because depreciation which is a non-cash item would drastically affect the profits of a REIT which is asset-heavy. More importantly, it is from the cash flow that dividends are paid.
On the other hand, MapleTree Logistic Trust has interest coverage of 7.9 and in terms of earnings and cash flow management is much stronger than Americold. Price to Book is also near 1 but from our observation, US REITs usually trade at a higher valuation (Lower Dividend Yield and Higher Price to Book Ratio) than their Singapore counterparts.
Chartist Angle
Source: MooMoo- Americold Chart
Source: Investing.com- Nam Lee Chart
Source: Moomoo- Tyson Food Chart
Source: Investing.com- MapleTree Logistic Trust Chart
On the whole, Tyson’s chart looks the best with the uptrend intact. 80 level would be crucial support and we stay bullish on Tyson as long as this level holds. A potential target would be 110 level.
Americold seems to be consolidating and the 25 levels would be an optimal entry-level. It has shot up to 27 over the past 2 weeks, would hope for a retracement to build a trading position rather than an investment based on their financial metrics.
Nam Lee has been pretty much a range-bound share since listing in 2011. We need a convincing break above 0.40 with huge volume to see it scale to new highs.
MapleTree’s chart is still looking sluggish with likely more downside. We guess the interest rate environment is playing a bigger role in dictating their share price. A good accumulation zone based on their support levels would be 1.5, 1.38 followed by 1.2. It is a quality stock with a strong sponsor so would be a good candidate for averaging down.
Summing Up
With the cold storage industry’s forecasted annual growth at 11% coupled with the recent food crisis and protectionism measures, this is the rare sector that has a bright prospect amid the current gloomy economic landscape.
We have highlighted 4 stocks that could be a beneficiary of this trend.
Americold Realty Trust would be the direct proxy but we are cautious of it being an investment due to their weak financial metrics. Nonetheless, it could be a trading idea with proper risk management as once the theme is in trend, it should exhibit the highest potential in terms of momentum.
For the other stocks, we find Tyson and Nam Lee to have good potential and their valuation is reasonable too.
Lastly, for Mapletree Logistic Trust, we would prefer to stay on the sidelines due to their weak chart structure.
Disclaimer:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.
