Investment Highlights

• We reiterate BUY call on Leong Hup International (LHI) with the same fair value of RM0.79/share based on FY23F PE of 13x, 1 SD lower than the 3-year mean. This also reflects an unchanged neutral ESG rating of 3 stars.

• We made no changes to our forecasts following an analyst briefing yesterday. These are the key takeaways:
  • To recap, the group registered revenue improvement in all operating markets in 1QFY23, except for Indonesia (-3% YoY). Despite higher supply of livestock & poultry, demand in Indonesian market has been low compared to other regional peers. This was partly due to lower consumption per capita of chicken from 11kg- 12kg to 9kg (-25%) 2 years ago, which we think could be attributed to the pandemic effect on high costs of living.
  • Even so, average selling prices (ASP) in Indonesia have surged significantly over the past month on the back of reduced supply as well as increased demand during the Ramadhan festivity.
  • On the production front, feed mill operation reached 1.1mil MT (+3% YoY) with an average utilisation rate of 60% (-2.9%-point YoY). The slightly lower utilisation rate was due to the lower sales volume of group feed at 1mil MT (-2% YoY), owing to the swine flu experienced by some of its operating countries.
  • However, supply volume of broiler day-old chicks (DOC) increased 7% YoY to 145mil chicks, whilst broiler chicken volume rose 5% YoY to 40mil birds. Also, the group sold 449mil eggs in 1QFY23, up by 9% YoY.
  • On the outlook, a sustained price and demand recovery in the Indonesian market could provide more upside to LHI’s earnings prospect, given that the country is the largest revenue contributor at 35%.
  • We also expect its Singapore market to improve as the Malaysian government has increased the export quota to 80% from 50%-60% previously. Coupled with declining feed cost, which is shown by lower corn (-12%) and soybean meal (-23%) prices since late February 2023, this augurs well for LHI.
  • Pending an official announcement on price ceilings and subsidies from the government, we do not discount the possibility of an extension possibly with lowered subsidies on eggs, partly offset by some adjustment to the price ceiling on chickens.
• The group currently trades at a compelling FY23F PE of 9x, half of its 3-year average of 18x.

Source: AmInvest Research - 2 Jun 2023