Results

• Within expectation… 3QFY18 core net profit of RM10.1m (qoq: -17%; yoy: +8%) took 9MFY18 core net profit to RM26.7m (+116.4%), accounting for 70.4% of our full year forecast. We consider the results within expectation, as we expect the strong earnings momentum in 3QFY18 to sustain into 4Q, underpinned by higher production capacity at both the broiler and layer segments.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• QoQ… 3QFY18 core net profit dipped 17% to RM10.1m, mainly on the back of weaker retail supermarket performance and lower earnings at the integrated livestock farming segment (as part of the earnings in 1Q was deferred into 2Q on the back of custom clearance, resulting in seasonally stronger earnings during 2Q).
• YoY… 3QFY18 core net profit rose 8% to RM10.1m, driven mainly by higher contribution from integrated livestock farming segment (arising from higher egg sales volumes, higher quantity and price of processed frozen products and pasteurized liquid eggs), but partly offset by weaker retail supermarket performance and higher finance cost.
• YTD… 9MFY18 core net profit more than doubled to RM26.7m (from RM12.3m a year ago), boosted mainly by higher contribution from integrated livestock farming segment (arising from higher egg sales volumes, higher quantity and price of processed frozen products and pasteurized liquid eggs) and lower retail supermarket losses, but partly offset by higher finance cost.
• Net debt and net gearing rose to RM208.6m and 0.7x, respectively (from RM185.7m and 0.64x as at 30 Sep 2017), due to higher borrowings incurred for its upstream expansion plan (i.e. the broiler and layer segment).

Risks

• (1) Spike in poultry feed prices; (2) Further weakness in MYR; and (3) Delay in expansion plan.

Forecasts

• Maintained.

Rating

BUY (↔)

• We like Lay Hong for its exciting earnings growth prospects, underpinned by its expansion plan (at the upstream segment) and tie-up with NH Foods (which allows Lay Hong to expand its market reach by leveraging on NH Foods’ wide geographical network)

Valuation

• Maintain BUY recommendation with unchanged SOP- derived TP of RM1.24 .

Source: Hong Leong Investment Bank Research - 27 Feb 2018