Investment Highlights

• We maintain our BUY recommendation on Leong Hup International (LHI) with a lower fair value (FV) of RM0.72/share (from RM0.99/share) based on an unchanged PER of 17x 2022F EPS. We revise 2022F and 2023F earnings estimates downward by 27% and 11% respectively. There is no ESG-related price adjustment for our rating of 3 stars.

• Good but could be better. LHI’s 4Q21 core net profit of RM65.6mil (3Q21: net loss of RM53.5mil, +8% YoY) brought 2021 earnings to RM111.1mil (-12% YoY). The earnings fell short of our expectation but within consensus. The earnings gap was mainly attributed to weaker-than-expected operating margin due to high input costs.

• LHI’s 4Q21 revenue was flat QoQ (livestock: +12% QoQ, feed mill: -13% QoQ) as higher ASP of broiler and day-old-chicks (DOC) in Malaysia and higher ASP and sales volume of broiler in Vietnam offset the decline in the feed mill segment.
  Both the livestock and feed mill segments’ EBIT margin improved sequentially with the easing of lockdowns, particularly in Malaysia and Vietnam.
• On a full-year basis, the group recorded higher revenue of RM7,153.5mil (+18% YoY) with all its operating countries reporting improvement in sales. LBIT of livestock segment also has narrowed to RM25.9mil (from RM54.1mil in 2020) due to better ASP of DOC in Indonesia and the Philippines. However, the feed mill unit’s EBIT (-5% YoY) was dragged down by the high raw material price, offsetting the impact of higher ASP.
• Earnings revision. Post-results, we revised downwards our 2022F and 2023F earnings forecasts by 27% and 11% respectively, after imputing higher raw material costs assumptions.

• Outlook. Nevertheless, we believe the longer term prospects of LHI’s earnings recovery remain intact, premised on returning demand from hotels, restaurants and cafés as the economy reopens. The expansion of its downstream business-toconsumer channel to other operating countries beyond Malaysia could re-rate LHI’s earnings further.

Source: AmInvest Research - 23 Feb 2022