Investment Highlights

• We maintain our BUY call on Leong Hup International (LHI) with an unchanged fair value (FV) of RM1.02/share based on a PER of 17x FY 22F EPS. We make no ESGrelated price adjustment for our rating of 3 stars.

• LHI reported its best-ever quarterly net profit of RM70.3mil in 1QFY21. This was above both our and market expectations, making up 35.0% and 40.8% of full-year forecasts respectively. This was due to stronger-thanexpected results for the livestock and feed mill segments.

• Hence, we raise our FY21F estimates by 5%. Our FY22F and FY23F forecasts remain unchanged.

• Going forward, we are optimistic that LHI will maintain its streak of strong earnings. This is based on strong and stable broiler and day-old chick (DOC) prices, a local table egg price recovery in 2HFY21 and solid contributions from The Baker’s Cottage (TBC).

• We believe that LHI will have a solid 2QFY21 despite MCO 3.0, given the seasonal effects of cold weather and festive seasons driving up poultry average selling price (ASP). Additionally, we reckon that the rising popularity of delivery and take-away will continue to hold HoReCa demand, preventing it from falling to levels of previous lockdown periods.

• However, we note downward pressure from the rising Covid-19 cases in Malaysia, Vietnam and the Philippines. Additionally, feed mill income is likely to normalise following the supernormal margins in the past quarters.

• The group posted an impressive revenue growth of 17% YoY and 4% QoQ, as well as EBITDA growth of 57% YoY and 19% QoQ. Overall, the revenue and earnings in all its geographical segments and both its livestock and feed mill segments largely saw improvements (Exhibit 1).

• Livestock and poultry revenue rose by 17% YoY and 2% QoQ, while EBITDA surged by 14.6x YoY and 7% QoQ. This was due to improved ASP of broiler and DOC in Indonesia, the Philippines and Malaysia (Exhibit 2).

• Feed mill revenue rose by 17% YoY and 8% QoQ, while EBITDA fell by 6% YoY although it climbed 39% QoQ. Revenue was stronger on a YoY basis due to higher sales volume and ASP in Vietnam and Indonesia. However, EBITDA dipped on a YoY basis primarily due to the normalisation of margins in these countries.
   
• On a geographical basis, all countries mostly saw YoY growth in revenue and EBITDA. Only Vietnam reported a drop in revenue on QoQ basis, while Singapore reported an EBITDA and EBITDA margin shrinkage.
   
• The group declared an interim dividend of 0.66 sen for the quarter, above its payout policy of 30%.

Source: AmInvest Research - 21 May 2021