LHI’s 2Q20 core net profit of RM16.3m (QoQ: -30.1%; YoY: -23.9%) took 1H20 core net profit to RM41.2m (-49.7%). The results came in below expectations, accounting for just 28.4-28.8% of our and consensus full-year estimates, due to weaker-than-expected livestock product prices (particularly, in Indonesia). We lower our FY20-22 core net profit forecasts by 11%, 2.4% and 2.0%, mainly to account for lower selling prices of DOC and broiler chickens in Indonesia. We downgrade our rating on LHI to HOLD (from Buy earlier) with a lower TP of RM0.87 (from RM0.90 earlier) based on 18x revised FY21 core EPS of 4.9 sen.

Below expectation. 2Q20 core net profit of RM16.3m (QoQ: -30.1%; YoY: -23.9%) took 1H20 core net profit to RM41.2m (-49.7%). The results came in below expectations, accounting for just 28.4-28.8% of our and consensus full-year estimates. Weaker-than-expected livestock product prices (particularly, in Indonesia), were the key variances against our estimate, we believe.

Exceptional items (EI). We adjusted for RM1.6m worth of EIs from LHI’s reported net profit in 2Q20, and these include (i) RM0.8m impairment loss on receivables, (ii) RM0.3m gain on disposals, and (iii) RM1.1m share option expense.

Dividend. Declared interim DPS of 0.55 sen, going ex on 14 Sep 2020.

QoQ. Core net profit shrank 23.0% to RM17.9m in 2Q20, as improved livestock product prices in Malaysia and better margin in Singapore operation were more than offset by weak livestock product prices in Indonesia and lower earnings contribution from feedmill segment.

YoY. Core net profit shrank 16.3% to RM17.9% in 2Q20, as improved earnings contribution from feedmill segment, higher sales volume of broiler chickens in Vietnam, and improved livestock product prices in Malaysia were more than offset by weak selling prices and sales volume of DOCs in Indonesia.

YTD. 1H20 core net profit fell 49.7% to RM41.2m, as improved earnings contribution from feedmill segment was more than offset by (i) lower sales volume and selling prices of eggs and DOC in Malaysia, and (ii) lower sales volume of fresh chickens and duck in Singapore.

Forecast. We lower our FY20-22 core net profit forecasts by 11%, 2.4% and 2.0%, mainly to account for lower selling prices of DOC and broiler chickens in Indonesia.

Downgrade to HOLD, with lower TP of RM0.87. Following the downward revision to our core net profit forecasts, we downgrade our rating on LHI to HOLD (from Buy earlier) with a lower TP of RM0.87 (from RM0.90 earlier) based on 18x revised FY21 core EPS of 4.9 sen.

Source: Hong Leong Investment Bank Research - 26 Aug 2020