1. The group believes feedmeal raw material prices would soften as improved weather conditions in South America boost corn and soybean yields. LHI believes that the compression in feedmill margins are temporary and will recover in the next two quarters.
2. Vietnam is expected to see a sharp fall in results in the next quarter. With Vietnam experiencing its first full-scale lockdown, the government has enforced a strict shutdown even on food retailers. Poultry providers are also facing difficulties transporting their products to the retailers. We expect the government to straighten out these issues soon as poultry is an essential product. Broiler prices in Vietnam have sunk to RM1.49/kg, from the previous level of RM4.00/kg.
As for The Baker’s Cottage (TBC), expansion plans in Vietnam would only take place come after it has established a strong presence in the region.
3. Although the rest of the SEA region is facing a lockdown, there are improvements in the Malaysian and Singapore markets as economic restrictions were eased recently. With supply-demand dynamics for both eggs and poultry products improving in Malaysia, we expect LHI to perform stronger going forward.
4. In Malaysia, LHI has temporarily halted its expansion of its TBC outlets due to pandemic restrictions. Nonetheless, the group is still committed to its goal of 160 outlets by FY21E, which is expected to contribute ~8% of Malaysian revenue. 139 outlets are functional to date. EBITDA and revenue contributions are still healthy. Capex per outlet is ~RM600K.
Currently, a TBC store has a product mix of 40% chicken, 39% bakery mix and 21% cake. LHI expects to see stronger contribution from TBC in September as the Mid-Autumn festival approaches.
5. Elsewhere, Indonesian contributions will be boosted by an upcoming poultry processing plant in West Java. This facility will service both traditional (restaurants, wet markets) and modern (supermarket) customers, offering the group with much needed downstream exposure.
Indonesian poultry prices are expected to remain strong as supply is curtailed by increased culling activities. Still, we remain wary that only 21% of Indonesia’s population has been administered with a single Covid-19 vaccine dose, increasing the likelihood of future lockdowns.
Source: AmInvest Research - 26 Aug 2021
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Created by AmInvest | Mar 27, 2024