LHI (6633)-Main Market, Agricultural Products

Profile: LHI (listed in May 2019@IPO RM1.10) is a pure-play poultry producer, with strong economies of scale and a leading market share. The group is one of the largest fully-integrated producers of poultry, eggs, and livestock feeds in ASEAN. The group possesses a meaningful market share riding on the fast growing ASEAN consumer markets with rising poultry consumption. LHI currently holds about 55.7% stake in TEOSENG.

Although the superb 3Q23 results is unlikely to repeat in 4Q23 as Indonesia and Vietnam poultry ASPs have weakened in 4Q, we continue to like LHI, as we believe it is well-positioned to capture the robust poultry consumption in the ASEAN region, supported by its continuous growth in production capacity and market share, as well as stable earnings delivery.

After plunging 53% from IPO price of 1.10 to a low of 0.51 (18 Jan), LHI staged a technical rebound to close at 0.55. At current level, LHI is trading at 9.3x FY12/2024, about 50% discount vs avg PER of 19x since listing.

Risk LHI’s 100% subsidiary Leong Hup Feedmill Malaysia Sdn Bhd was fined RM157.5m by the MyCC for participating in the formation of price-fixing cartel for poultry feed. LHI contends that the fine is “without merit’ and it will take necessary actions to challenge MyCC’s decision via submission of appeal application (decision likely by 4Q23) to Competition Appeal Tribunal (CAT).

In wake of the MACD golden cross formation, LHI is poised for further upside. A successful breakout above immediate hurdles at 0.56-0.57 may spur greater upside towards 0.60-0.62-0.65 levels

✅Current price: RM0.55

✅Entry: RM0.53-0.54-0.55

✅Resistance: RM0.60-0.62-0.65

✅Cut loss: RM0.52

✅FY12/2024E P/E: 9.3x (vs avg 19x since listing)

✅FY12/2024E DY: 1.8%

✅Latest BVPS (RM): 0.61

✅Risk profile: Medium

Source: Hong Leong Investment Bank Research - 29 Jan 2024