Results Highlights

• Leong Hup’s (LHI) 1Q2020 net profit sank 64.0% Y.o.Y to RM21.8 mln, dragged down by the weakness in the the livestock and poultry related products segment in the Malaysia, Indonesia and Singapore market that offset the improvement of feedmill segment. Revenue for the quarter declined 4.8% Y.o.Y to RM1.43 bln.

• The reported results came below our expectations, making up to 12.6% of our net profit estimate of RM173.6 mln for 2020. The reported revenue, however, came within our expectations, amounting to 23.8% of our full-year forecast of RM6.04 bln. The variance is mainly due to the lower ASP of DOC, broiler chickens and eggs, coupled with the higher effective tax rate at 27.8% vis-a-vis our estimates of 25.0%.

• Segment wise in 1Q2019, the livestock and poultry related segment’s EBITDA sank 94.9% Y.o.Y to RM6.0 mln, bogged down by the decrease in ASP of day old chicks (DOC), broiler chickens and eggs in Malaysia, lower ASP of DOC in Indonesia and broiler chickens in Vietnam. The feedmill segment’s EBITDA rose 40.2% Y.o.Y to RM119.4 mln supported by higher sales volume in Vietnam following the group’s expansion plans. Geographically, Malaysia accounted to RM383.5 mln or 26.7% (ratio unchanged from 4Q2019) of total revenue, while overseas contribution amounted to RM1.05 bln or 73.3% of the group’s total revenue of RM1.43 bln in 1Q2020.

• As of 1Q2020, LHI’s gearing stood at 115.4% (up from 114.7% recorded in 4Q2019). Moving forward, we expect LHI’s gearing level to remain elevated as the group will hinge on external funding to cater for its overseas expansion.

Source: Mplus Research - 20 May 2020