LHI is one of the largest fully integrated producers of poultry, eggs, and livestock feeds in ASEAN (attractive consumer markets with a population of over 600m people). Valuation is undemanding at 17.1x FY21E P/E (-29% vs 1Y mean 24x and -39% vs regional peers 28.3x), given its significant regional presence, production scale, and clear and prudent expansion plans, coupled with a strong FY20-22E EPS CAGR of 28% and decent DY of 2.8%. We reckon the dismal ASP environment would improve with firmer ASP going into 2021, taking cues from the commencement of Covid-19 vaccination programme and market consolidation as high feed cost (mainly corn and soybean meal, which prices have risen considerably since 3Q20) will likely deter smaller scale farmers from expanding capacity. Meanwhile, 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 feedmill capacity expansion in Vietnam and Philippines)

Potential downtrend reversal amid the triple bottom pattern. After plunging 34% from 52-week high of RM0.96 to a low of RM0.635, LHI has found solid long term supports near the RM0.635-0.685 levels. The triple bottom pattern and upticks in technical indicators coupled with soaring volume last Friday (2.55m shares vs 90D average 2.16m) are expected to spur prices towards overhead resistances at RM0.74 (200D SMA) and RM0.775 zones. A successful breakout above these barriers would signal that a new uptrend has begun, potentially lifting the stock to retest RM0.835 (38.2% FR) and our LT target at RM0.90 psychological levels. Cut loss at RM0.65.

Source: Hong Leong Investment Bank Research - 12 Apr 2021