FY21 core net profit of RM89.5m (-24.1% YoY) missed expectations, accounting for only 77.7-88.0% of consensus and our estimates, due mainly to higher-than expected feed prices at livestock and poultry segment. We trim FY22-23 core net profit forecasts by 19.0% and 15.2%, mainly to account for higher feed cost assumptions. Post downward earnings forecast revision and roll-forward of our valuation base year (from mid FY21-22 to FY22), we lower our TP on LHI by 1.5% to RM0.66, based on 18x revised FY22 core EPS of 3.7 sen. We maintain our BUY rating on LHI, as we view LHI a proxy to economic reopening in the Southeast Asia region (given its exposure in Malaysia, Indonesia, Singapore, Vietnam and Philippines). Over the longer term, we believe further re -rating is warranted, should LHI succeed in replicating its B2C channel beyond Malaysia operations.

Missed expectations. 4Q21 core net profit of RM36.0m (vs. core net loss of -RM50.1m in 3Q21 and core net profit of RM50.8m in 4Q20) took FY21 total sum to RM89.5m (- 24.1% YoY). The results missed expectations, accounting for only 77.7-88.0% of consensus and our estimates, due mainly to higher-than-expected feed prices at livestock and poultry segment.

Exceptional items (EIs) in FY21. Core net profit of RM89.5m in FY21 was arrived after adjusting for (i) RM5.2m impairment loss on PPE and receivables, (ii) RM2.7m disposal gains, and (iii) RM1.5m share option expense.

QoQ. 4Q21 performance returned to black, with a net profit of RM36.0m (from a core net loss of -RM50.1m in 3Q21), boosted by turnaround at livestock and poultry segment and improved earnings contribution from feedmill segment. EBITDA at livestock and poultry segment swung back to positive territory (RM37.3m vs. a negative EBITDA of - RM54.5m in 3Q21), due mainly to higher poultry product prices in Malaysia and higher ASP and sales volume of broiler chickens in Vietnam. EBITDA at feedmill segment, on the other hand, improved for the second consecutive quarter (by 33.9% QoQ) to RM126.2m in 4Q21, due mainly to higher ASPs, we believe.

YoY. 4Q21 core net profit declined by 29.1% to RM36.0m, as improved earnings contribution from feedmill segment was more than offset by lower earnings contribution from livestock and poultry segment. Despite higher livestock product prices and sales volumes at the livestock and poultry segment (particularly in Malaysia, Vietnam and Philippines, which have in turned resulted boosted the segment’s revenue by 17.9%), EBITDA at the segment fell 56.0% to RM84.7m, as higher selling prices and volumes were more than negated by elevated livestock feed costs. EBITDA at livestock feed segment, on the other hand, increased by 29.9% to RM97.2m, primarily due to improvement in margin contribution from Vietnam.

YTD. Core net profit fell 24.1% to RM89.5m in FY21, as higher livestock product prices and sales volumes were more than offset by margin erosion at livestock feedmilll segment and higher tax expense.

Forecast. We trim our FY22-23 core net profit forecasts by 19.0% and 15.2%, mainly to account for higher feed cost assumptions.

Maintain BUY with lower TP of RM0.66. Post downward earnings forecast revision and roll-forward of our valuation base year (from mid FY21-22 to FY22), we lower our TP on LHI by 1.5% to RM0.66, based on 18x revised FY22 core EPS of 3.7 sen. We maintain our BUY rating on LHI, as we view LHI a proxy to economic reopening in the Southeast Asia region (given its exposure in Malaysia, Indonesia, Singapore, Vietnam and Philippines). Over the longer term, we believe further re-rating is warranted, should LHI succeed in replicating its B2C channel beyond its Malaysia operations.

Source: Hong Leong Investment Bank Research - 23 Feb 2022