LHI’s 1Q21 core net profit of RM72.0m (QoQ: +41.7%; YoY: +222.8%) beat expectations, accounting for 41.7-46.5% of consensus and our full-year estimates. The positive results surprise was due mainly to stronger-than expected livestock prices in Malaysia and Indonesia, as well as better-than expected contribution from Singapore operations. We raise our FY21-22 core net profit forecasts by 5.9% and 4.8%, mainly to account for higher selling price assumptions for broiler chickens and DOC in Malaysia and Indonesia. Ma intain BUY rating with a higher TP of RM0.90 (from RM0.76 previously), to reflect an upward revision to our core net profit forecasts and the roll-forward of our valuation base year.

Beat expectations. 1Q21 core net profit of RM72.0m (QoQ: +41.7%; YoY: +222.8%) beat expectations, accounting for 41.7-46.5% of consensus and our full-year estimates. The positive results surprise was due mainly to stronger-than-expected livestock prices in Malaysia and Indonesia, as well as better-than-expected contribution from Singapore operations.

Exceptional items in 1Q21. Core net profit of RM72.0m in 1Q21 was arrived after adjusting for (i) RM1.7m impairment loss, (ii) RM0.6m disposal gain, and (iii) RM0.5m share option expense.

Dividend. Declared 1st interim DPS of 0.66 sen (going ex on 17 Jun 2021). For the full year, we are projecting a total DPS of 2 sen, translating to a dividend yield of 2.8%.

QoQ. Core net profit surged 41.74% to RM72.0m in 1Q21, boosted by (i) higher selling prices and sales volumes of boiler chickens and higher ASP of DOC in Malaysia, Indonesia and Philippines, (ii) higher earnings contribution from feedmill segment, and lower finance costs.

YoY. Core net profit surged 222.8% to RM72.0m in 1Q21 (from RM21.8m SPLY), boosted mainly by higher DOC prices in Indonesia and Philippines, (ii) higher broiler chicken prices in Malaysia, Indonesia and Philippines, (iii) higher livestock feed sales volume and selling prices in Vietnam and Indonesia, and (iv) lower finance costs.

Outlook. While we are still holding the view that high poultry prices may not sustain (if history is a guide), it is unlikely for poultry product prices to revisit their previous lows (i.e. 2Q20), 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. 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 feedmill capacity expansion in Vietnam and Philippines).

Forecast. We raise our FY21-22 core net profit forecasts by 5.9% and 4.8%, mainly to account for higher selling price assumptions for broiler chickens and DOC in Malaysia and Indonesia.

Maintain BUY, with higher TP of RM0.90. We maintain our BUY rating on LHI, with a higher TP of RM0.90 (based on 18x revised mid FY21-22 EPS of 5 sen) to reflect an upward revision to our core net profit forecasts and the roll-forward of our valuation base year (from FY21 to mid FY21-22).

Source: Hong Leong Investment Bank Research - 27 May 2021