Investment Highlights

• We reiterate BUY call on Leong Hup International (LHI) with an unchanged fair value of RM0.95/share, pegged to an unchanged FY24F P/E of 11x, in line with its 3-year mean. We make no adjustment to our neutral ESG rating of 3-star.

• We maintain FY24F-FY25F earnings as FY23 core net profit of RM302mil came within expectation, 1% above our forecast and 3% of consensus estimate. We introduce FY26F net profit with a 2% growth premised on revenue expansion of 3%.

• YoY, FY23 revenue improved by 6% on the back of higher contribution from:
  
  (i) livestock & poultry operation (+4%) mainly on higher average selling price (ASP) and sales volume of day-old-chicks (DOC)/eggs in Malaysia, dressed chickens in the Philippines and boiler chickens in Indonesia, and
  
  (ii) improved feedmill operation (+8%) due to higher ASP and volume in Indonesia, Philippines and Vietnam.

• FY23 core net profit increased by 38% YoY in tandem with a 36% EBITDA growth, thanks to better margins from livestock & poultry (+21% YoY) and feedmill (+46% YoY) segments. This is due to better margin from higher ASP of eggs in Malaysia and reduction of raw material cost.

• QoQ, 4QFY23 revenue declined by 4% due to lower contribution from livestock & poultry (-8%), mainly from weak Indonesian markets. 4QFY23 net profit slid by 39%, due to lower ASP of DOC in Indonesia, in which EBITDA margin dropped significantly by 8%-points to 4%.

• We remain positive on LHI premised on:
  
  (i) expectation of the group to continue gaining market share from smaller players exiting the business due to elevated operational costs,
  
  (ii) gradual increase in revenue from an expansion in production capacities to supply more poultry to Indonesia and Philippines, and
  
  (iii)better average EBITDA margin with an assumption of 10%-12% from feedmill segment due to easing of its major raw material cost (corn and soybeans meal).

• The stock currently trades at a compelling FY24F PE of 8x, below its 3-year average of 11x.

Source: AmInvest Research - 28 Feb 2024