Leong Hup International Bhd (LHI) jumped to a high of 77.5 sen in early Oct this year, and showed promise of further uptrend.

For the 3QFY24 results, the group reported a marginal 2% year-on-year (y-o-y) rise in net profit to RM135 million. bringing the 9MFY24’s bottom line to RM288.1 million, up 31% YoY. The robust YTD performance is likely to lead consensus to upgrade LHI’s net earnings forecasts, which currently stand at RM310.2 million in FY24 and RM325.2 million in FY25. Based on current consensus estimates, the stock is trading at prospective price earnings ratio of 7.8x and 7.4x, respectively.

LHI explained that the unexpected weakening of the US dollar against currencies of countries it operates in during 3QFY2024 led to lower feed costs, benefitting both the feedmill and livestock segments’ margins. Although recent foreign exchange rate reversals have reduced this benefit, it expects the financial performance for 2024 to be better than prior year.

Analysts expect poultry players such as LHI to see improved profit margins thanks to declining feed expenses and other input costs. Feed typically makes up 65%-75% of production costs, making it a tailwind for the poultry sector. Prices of key ingredients like corn and soybean meal have been steadily falling since early 2024.

In October, the average prices per tonne of soybean have declined 18% y-o-y to US$350 amid higher supply from Argentina, US and China.

Meanwhile, prices of corn that usually account for 55%-69% of feed formulations, was cheaper by an average 14% to US$17,319 per tonne last month on the back of na increase in output in key regions, including the US, China, European Union and Ukraine.

Volatility in the exchange rate poses a risk to all poultry companies that source commodities in the US dollar. Going forward, the ringgit is expected to strengthen and end the year around 4.03 against the US dollar, helping to reduce input costs for poultry firms. These would probably translate into much better performance moving forward.