LHI’s 3Q20 Core Net Profit of RM22.5m (QoQ: +25.8%; YoY: -54.4%) Took 9M20’s Sum to RM67.1m (-49.2%). The Results Missed Expectations, Accounting for Only 51.9-59.6% of Our and Consensus Estimates, Due to Weaker-than-expected Livestock Prices, in Particular, Lower-than-expected Egg Prices in Malaysia, and DOC Prices Lower-than-expected Egg Prices in Malaysia, and DOC Prices in Indonesia, We Believe. We Cut Our FY20-22 Core Net Profit Forecasts by 24.5%, 12.7% and 10.7%, Mainly to Reflect Lower ASP Assumptions for DOC in Indonesia and Eggs in Malaysia. Following the Downward Revision in Our Core Net Profit Forecasts, We Maintain Our HOLD Rating on LHI With a Lower of RM0.76 (from RM0.87 Earlier) Based on 18x Revised FY21 Core EPS of 4.2 Sen.

Missed expectations. 3Q20 core net profit of RM22.5m (QoQ: +25.8%; YoY: -54.4%) took 9M20’s sum to RM67.1m (-49.2%). The results missed expectations, accounting for only 51.9-59.6% of our and consensus estimates. We believe the earnings shortfall came largely from weaker-than-expected livestock prices, in particularlyparticular, lower-than-expected egg prices in Malaysia, and DOC prices in Indonesia. .

Exceptional items (EIs) in 9M20. Core net profit of RM67.1m in 9M20 was derived after adjusting for (i) RM6.3m impairment, (ii) RM3.0m disposal gain, and (iii) RM3.1m share option expense.

QoQ. Core net profit recovered by 25.8% to RM22.5m in 3Q20, driven mainly by improved prices of broiler and DOC in Malaysia, (ii) reduced losses in Indonesia, and improved revenue in Vietnam. During the quarter, EBITDA at livestock feed segment improved by 14.3% to RM115.7m, and this was due to higher livestock feed sales volume in Indonesia and Vietnam.

YoY. Despite a marginal increase in revenue (+3.0%, driven mainly by higher sales volume and ASP of livestock feed in Vietnam), 3Q20 core net profit declined by 54.4% to RM22.5m, dragged by (i) lower feedmill earnings in Indonesia (due to lower livestock feed prices), (ii) lower sales volume and ASP of DOC and eggs in Malaysia, and (iii) lower broiler price in Philippines.

YTD. Core net profit declined by 49.2% to RM67.1m in 9M20, dragged mainly by lower sales volume and ASP of eggs and DOC in Malaysia, (ii) lower sales volume of fresh chickens and duck, as well as lower sales volume and ASP of processed food in Singapore, and (iii) lower sales volume and ASP of livestock feed in Indonesia. Despite a marginal 0.6% decline in revenue at livestock feed segment, EBITDA at the segment increased by 9.8% to RM336.3m in 9M20, as lower sales volume and ASP of livestock feed in Indonesia was more than mitigated by higher sales volume and ASP of livestock feed in Vietnam.

Forecast. We cut our FY20-22 core net profit forecasts by 24.5%, 12.7% and 10.7%, mainly to reflect lower ASP assumptions for DOC in Indonesia and eggs in Malaysia.

Maintain HOLD, with lower TP of RM0.76. Following the downward revision in our core net profit forecasts, we lower our TP on LHI by 12.6% to RM0.76 (from RM0.87 earlier) based on 18x revised FY21 core EPS of 4.2 sen. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 25 Nov 2020