Investment Highlights

• We maintain our BUY call on Leong Hup International (LHI) with an unchanged fair value (FV) of RM0.91/share. Our FV is based on a PE of 17x FY22F EPS.
• We believe that supply shortage-induced stronger prices and solid performances from the Vietnam segment and The Baker’s Cottage will partially offset lingering pandemic effects in FY21F. LHI’s strong expansionary measures and developments into downstream production are also commendable measures.
• Key takeaways from LHI’s results briefing include:
  1. A reduction in breeding quantities by contract farmers due to rising cornfeed prices may cause a poultry supply shortage in Malaysia in FY21F.
  2. Poultry product prices have largely stabilised in most markets such as Vietnam and the Philippines, and the supply shortage will push prices up further. Malaysia conversely is still experiencing volatile broiler and egg prices.
  3. LHI foresees a decent 4QFY20 on the back of the cyclicaldriven demand of the festive season.
  4. LHI intends to expand production aggressively in the highgrowth potential markets of Vietnam and the Philippines, with several feedmill and farm projects in the pipeline.
  5. In the more established markets of Malaysia and Indonesia, LHI’s focus is on expanding its downstream segment.
  6. The Baker’s Cottage has proven to be a success, contributing 8% of Malaysian revenue in 3QFY20. The group believes that it can push Baker’s Cottage’s contribution to 10% of revenue in the near future.
  7. LHI is targeting 150 functioning The Baker’s Cottage outlets for FY21F. The group has 86 outlets currently, surpassing its FY20E goal of 80.

Source: AmInvest Research - 26 Nov 2020