Investment Highlights

• We maintain BUY call on Leong Hup International (LHI) with an unchanged fair value of RM0.95/share, pegged to FY25F P/E of 11x, slightly above its 5-year mean of 10x. We make no adjustment to our neutral ESG rating of 3 stars.

• We deem LHI’s 1HFY24 earnings of RM153mil as within our expectations, reflecting 49% of our full-year estimate and 53% of consensus forecast. Hence, we made no changes to our FY24F-FY26F earnings.

• YoY, 1HFY24 revenue improved by 3% on the back of higher revenue contribution from improved livestock & poultry operation (+6%), mainly caused by higher average selling price (ASP) and sales volume of day-old-chicks (DOC) and broiler chickens in Indonesia and the Philippines.

• Together with the higher revenue, 1HFY24 core net profit increased by 76% YoY in tandem with a 37% EBITDA growth, thanks to better EBITDA from livestock & poultry (+2.5x YoY) segments from the higher product prices coupled with lower raw material costs from the feedmill division.

• QoQ, 2QFY24 revenue declined by 2% due to lower feed revenue (-10% QoQ) in all countries as the group passed on lower raw material costs to customers. Despite the decrease in revenue, 2QFY24 PBT rose by 48% QoQ, driven by higher margins from increased ASP of DOC and broiler chickens in Indonesia, coupled with improved feedmill margins.

• Moving forward, we expect earnings growth to be driven by continuous improvement in Indonesia, Vietnam and the Philippines while Malaysia and Singapore earnings are expected to normalise after last year’s exceptional results.

• From a valuation perspective, the stock currently trades at an attractive CY25F PE of 6x vs. its 3-year average of 11x while offering a fair dividend yield of 4%.

Source: AmInvest Research - 28 Aug 2024