LHI’s 3Q19 core net profit of RM49.4m (QoQ: +131.2%; YoY: +33.0%) took 9M19 core net profit to RM132.1m (-20.3%). The results missed expectations, accounting for only 66.1-68% of consensus and our full-year estimates. Weaker than-expected poultry product prices in Indonesia and Vietnam were the culprits, we believe. We cut our FY19-21 core net profit forecasts by 16.3%, 8.9%, and 5.1% to RM162.5m, RM203.7m and RM244.4m, respectively, largely to account for lower ASP assumptions for DOC in Indonesia, and broiler chickens in Malaysia, Indonesia and Vietnam. Post downward revision of core net profit forecasts, we lower our TP on LHI by 9.1% to RM1.00 (18x revised FY20 core EPS of 5.6 sen) but maintain BUY.

Missed expectations. 3Q19 core net profit of RM49.4m (QoQ: +131.2%; YoY: +33%) took 9M19 core net profit to RM132.1m (-20.3%). The results missed expectations, accounting for only 66.1-68% of consensus and our full-year estimates. Weaker-than expected poultry product prices in Indonesia and Vietnam was the reason for the results shortfall, we believe.

QoQ. 3Q19 core net profit more than doubled to RM49.4m (from RM21.4m in previous quarter), boosted mainly by higher ASPs for broiler chickens, eggs, DOC and livestock feed in Malaysia.

YoY. 3Q19 core net profit rose 33% to RM49.4m, due mainly to higher ASPs and sales volume of broiler chicken and eggs in Malaysia, higher feedmill sales recorded in Indonesia, as well as the commencement of Dong Nai feedmill plant in Vietnam since Jan-19) which altogether more than offset lower ASP for DOC and broiler chicken in Indonesia, as well as depressed broiler chicken ASP in Vietnam.

YTD. 9M19 core net profit declined by 20.3% to RM132.1m, dragged mainly lower prices of broiler, DOC and eggs in Malaysia in 2Q19, lower selling prices of DOC and broiler chickens in Indonesia, as well as broiler chickens and eggs in Vietnam. All these, however, were partly mitigated by improved feedmill earnings (arising from higher sales recorded in Indonesia and the commencement of Dong Nai feedmill plant in Vietnam since Jan-19).

Outlook. In the results announcement, LHI expects higher sales volume of both livestock and feed to mitigate the seasonally weaker livestock prices in 4Q19.

Forecast. We cut our FY19-21 core net profit forecasts by 16.3%, 8.9%, and 5.1% to RM162.5m, RM203.7m and RM244.4m, respectively, largely to account for lower ASP assumptions for DOC in Indonesia, and broiler chickens in Malaysia, Indonesia and Vietnam.

Maintain BUY but with lower TP of RM1.00. Post downward revision of core net profit forecasts, we lower our TP on LHI by 9.1% to RM1.00 based on 18x revised FY20 core EPS of 5.6 sen.

Source: Hong Leong Investment Bank Research - 3 Dec 2019