Almarai is well known as a dairy company, but its foray into the poultry business is boosting its shares, according to The National of the United Arab Emirates.
The Saudi company, whose dairy products and juices are available throughout the region, beat analysts' earnings estimates for the second quarter with a net profit of 343.1 million riyals (SAR), up 19.5 per cent from the same period last year.
Almarai was launched in 1976 by Saudi Prince Sultan bin Mohammed bin Saud Al Kabeer, who continues to lead the company. It went public on the Saudi Tadawul in 2005 and now has a market capitalisation of SAR7.7 billion. The stock is near a four-year high as investors are optimistic the company's plan to produce 100 million chickens annually within three years will be successful. The shares fell 0.7 per cent to SAR191.25.
It is an expensive gamble. Almarai entered the high-margin poultry business last year when it acquired Hail Agricultural Development for SAR1 billion and said it planned to invest SAR2.5 billion in the next three years to increase its output by five times.
Most of the Kingdom's chickens are now imported frozen from Brazil.
Farouk Miah, an analyst with NCB Capital in Riyadh, explained: "Almarai won't be able to compete on price, but they will be able to market [its birds] as Almarai local, good quality chickens, which is something consumers can relate to with their brand."
Mr Miah maintains a 'neutral' rating on the stock but will look to upgrade it if the poultry investments begin to generate profits.
He told The National : "We see it as a period where they're laying foundations and the benefits of that investment need to be coming through."