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 FY22F EPS. We make no ESG-related price adjustment for our rating of 3 stars.

• We feel positive following LHI’s results briefing last Friday. Many talking points affirm our favourable view on the company’s outlook. 1. The group believes that the imbalances of broiler and day old chick’s (DOC) demand and supply dynamics have been corrected.

• Local spot prices are currently RM2.00/kg for DOC and RM5.60/kg for broilers. Prices have trended steadily upward throughout 2021F so far, and are holding at levels reminiscent of the 2016–2018 poultry ASP uptrend (Exhibits 1 & 2).

• We remain confident that poultry ASP will continue to hold despite the MCO 3.0. The widespread adoption of takeaway and delivery-based consumption is likely to sustain HoReCa demand, similar to MCO 2.0. Additionally, poultry ASP is positively affected by seasonal cold weather and festive season effects.

• LHI has expanded its market share over the course of the year, with quarterly revenue growing roughly 2–4% on a YoY basis in 1QFY21. 2. A local table egg price recovery is forecast in 2HFY21.

• The group is confident that ASP of eggs would recover in the next couple of months. Egg suppliers have been cutting production since the Salmonella scare in March. Given the long production cycle of layers, we believe that the effects of the supply-reduction will only take place in the coming months.

3. Indonesia, the Philippines, Vietnam broiler and DOC prices are expected to remain strong. Spot prices are listed in Exhibit 3.

• Indonesian prices have been seeing a stable recovery since the culling exercises took place in 3QFY20 (Exhibit 4).

• Upcoming and newly completed livestock and feed mill expansions in both Vietnam and the Philippines are envisaged to drive revenue and profitability margins. In particular, the newly completed feed mill in Luzon is expected to improve livestock segment margins through in-house consumption.

Source: AmInvest Research - 24 May 2021