1H21 core net profit of RM103.6m (+151.3%) accounted for 53.7-63.1% of consensus and our full-year estimates. We consider the results within our expectation, as we anticipate lockdowns imposed in SEA region (as a result of Covid-19 pandemic) to affect livestock demand and prices in most of LHI’s operating countries. Maintain core net profit forecasts, TP of RM0.90 (based on 18x mid FY21-22 EPS of 5 sen), and BUY rating on LHI.

Within our expectation. 2Q21 core net profit of RM30.5m (QoQ: -57.6%; YoY: +70.3%) took 1H21’s sum to RM103.6m (+151.3%), accounting for 53.7-63.1% of consensus and our full-year estimates. We consider the results within our expectation (but above consensus), as we anticipate lockdowns imposed in SEA region (as a result of Covid-19 pandemic) to affect livestock demand and prices in most of LHI’s operating countries.

Exceptional items (EIs) in 1H21. Core net profit of RM103.6m in 1H21 was arrived after adjusting for (i) RM3.9m impairment loss, (ii) RM2.2m disposal gain, and (iii) RM1m share option expense.

QoQ. Despite a 10.6% increase in revenue, core net profit fell 57.6% to RM30.5m in 2Q21, due mainly to higher livestock feed costs, which more than negated higher sales livestock sales volume and selling prices, as well as higher sales in downstream business in Malaysia.

YoY. Core net profit surged 70.3% to RM30.5m in 2Q21, boosted mainly by higher sales volume and selling price of livestocks in Malaysia, Indonesia and Philippines, as well as the expansion of its downstream business-to-consumer channel in Malaysia operations, which altogether more than mitigated weaker feedmill segment (as a result of the surge in raw material costs, which outpaced the increase in feed prices).

YTD. Core net profit surged 151.3% to RM103.6m in 1H21 (from RM1Q21 core net profit of RM72.0m (QoQ: +41.7%; YoY: +222.8%) beat expectations, m SPLY), boosted mainly by higher sales volume and selling price of livestocks in Malaysia, Indonesia and Philippines, as well as the expansion of its downstream business-to-consumer channel in Malaysia operations, which more than mitigated weaker contribution from feedmill segment (as a result of a surge in the costs of raw materials, such as corn and soybean).

Forecast. Maintain, Pending More Details From the Virtual Briefing.

Maintain BUY; TP: RM0.90. Maintain BUY rating on LHI, with an unchanged TP of RM0.90 based on 18x mid FY21-22 EPS of 5 sen.

Source: Hong Leong Investment Bank Research - 25 Aug 2021