According to Bloomberg, the average retail price of chicken meat in Indonesia plunged 25% to 30,500 rupiah (US$2) per kg.
Leong Hup’s operations in Indonesia make up circa 37% of the group’s total business. However, the livestock segment only makes up 30% of its operations in Indonesia, contributing circa 10–11% to the group. Hence, we expect the impact of the plunge in chicken price in Indonesia to be minimal.
We continue to anticipate a better 2H for Leong Hup on the back of improved local market prices for DOC and broiler which have increased to RM2.10 per DOC and RM5.40 per kg respectively on 16 Aug 2019.
We remain convinced that the long-term outlook for Leong Hup is still positive given the stable demand of chicken while its source of income outside Malaysia such as Singapore, Vietnam, Indonesia and the Philippines will provide growth potentials for the group.
We maintain our BUY call with an unchanged FV of RM1.17/share based on a PER of 18x over FY20F EPS.
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