Investment Highlights

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

• We deem LHI’s 1QFY24 earnings of RM57mil as within our expectations, reflecting 18% of our full-year estimate and 21% of consensus forecast. We expect 2QFY24 earnings to be stronger due to robust demand from Indonesia and Philippines. Hence, we made no changes to FY24F-FY26F earnings.

• YoY, 1QFY24 revenue improved by 10% on the back of higher revenue contribution from: (i) livestock & poultry operation (+10%) mainly on higher average selling price (ASP) and sales volume of day-old-chicks (DOC) in Indonesia, (ii) higher ASP of broiler chickens in Indonesia, Vietnam and increased sales volume of broiler chickens in Philippines, and (iii) improved feedmill operation (+10%) due to higher ASP and volume in Indonesia and Philippines.

• 1QFY24 core net profit increased by 2.6x YoY in tandem with a 58% EBITDA growth, thanks to better margins from livestock/poultry and feedmill (+10% YoY) segments. This is due to better margin from higher ASP of broiler chickens and DOC in Indonesia and Vietnam as well as reduction of raw material cost.

• QoQ, 1QFY24 net profit slid by 31% due to lower government subsidies on chickens (-91% QoQ) and reduced revenue contribution in Vietnam, in which group’s EBITDA margin dropped significantly by 2.6%-points to 10%.

• 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 major raw material cost (corn and soybeans meal). 
   

• The stock currently trades at a compelling FY24F PE of 6x, below its 3-year average of 11x.

Source: AmInvest Research - 31 May 2024