LHI’s FY20 core net profit of RM117.9m (-31.3%) beat expectations, accounting for for 120.7-129.2% of consensus and our estimates, due mainly to stronger than-expected livestock prices in Indonesia and better-than-expected contribution from Singapore. Maintain core net profit forecasts, TP of RM0.76 (based on 18x FY21 EPS of 4.2 sen), and BUY rating on LHI.

Beat expectations. 4Q20 core net profit of RM50.8m (QoQ: +96.7%; YoY: +20.7%) took FY20’s sum to RM117.9m (-31.3% YoY). The results beat expectations, accounting for 120.7-129.2% of consensus and our estimates. The positive results surprise was due mainly to stronger-than-expected livestock prices in Indonesia and better-than-expected contribution from Singapore.

Exceptional items (EIs) in 4Q20. Our core net profit of RM50.8m in 4Q20 was arrived after adjusting for (i) RM6.0m impairment on PPE and receivables, (ii) RM7.5m reversal of provision for claims, and (iii) 0.6m share option expense.

QoQ. Core net profit almost doubled to RM96.7m in 4Q20, boosted by (i) higher DOC sales volume and more favourable ASP of broiler chickens and DOC in Indonesia (evident by a 123.4% surge in EBITDA contribution from Indonesia), and (ii) higher contribution from Singapore.

YoY. Core net profit rose 20.7% to RM50.8m in 4Q20, as weaker contribution from Malaysia (from weaker livestock prices) and weaker feedmill earnings (due to normalisation of feed margins in Indonesia and Vietnam) were more than mitigated by (i) higher earnings contribution from Singapore, (ii) higher ASP and sales volume of DOC in Indonesia, and (iii) higher selling price and sales volume of eggs in Vietnam.

YTD. Core net profit declined by 31.3% to RM117.9m, due mainly to less-than favourable livestock prices in most operating countries (especially during 1H20, as consumption and prices of livestock products were hit hard by Covid -19 lockdowns), but partly mitigated by improved contribution from feedmill.

Outlook. As highlighted in our update (dated 8 Feb 2021), livestock prices in Malaysia and Indonesia (the key markets for LHI’s livestock segment, particularly, day-old-chick and broiler) have been improving since Dec-2020, and it is unlikely for poultry product prices to revisit their previous lows (i.e. 2Q20), as (i) economic activities have resumed gradually since then and (ii) high feed cost (mainly corn and soybean meal, which prices have risen considerably since 3Q20) will likely deter smaller scale farmers from expanding capacity. On the other hand, bottomline contribution from feedmill segment will remain stable going forward, as lower margin will likely be mitigated by higher sales volume in Vietnam (arising from the ongoing fe edmill capacity expansion in Vietnam and Philippines).

Forecast. Maintain for now, pending more update from post results briefing on 24 Feb 2021.

Maintain BUY, with unchanged TP of RM0.76. Maintain TP of RM0.76 based on unchanged 18x FY21 EPS of 4.2 sen. We maintain our BUY rating on LHI, given the improving near-term earnings prospects. At RM0.70, LHI is trading at FY21-22 P/E of 16.5x and 13.2x, respectively.

Source: Hong Leong Investment Bank Research - 24 Feb 2021