Investment Highlights

• We initiate coverage on Yenher Holdings Berhad (Yenher) with a BUY call and a target price of RM1.125 which translates into a 19% potential upside. We anticipate significant growth potential, with a projected revenue growth of 62% year-on-year in FY2025F. This growth can be attributed to its expansion plans and the expected sales from vaccines targeting African Swine Fever (ASF).

• Proven track record. With over three decades of industry experience, Yenher has established itself as a comprehensive hub for animal health, and nutrition manufacturing and supply. Yenher’s primary focus is on manufacturing premixes and distributing a wide range of animal health products. While Malaysia remains its main market, Yenher has also expanded its presence in overseas markets.

• Revenue growth at CAGR of 56% from FY2017 to FY2022. In FY2022, Yenher achieved revenue of RM355.3m, representing a significant 35% yoy increase from FY2021. Over the period from FY2020 to FY2022, the Group's revenue demonstrated an impressive compound annual growth rate (CAGR) of 69%. This robust growth can be attributed to the increased sales of raw materials, commodities, vitamins and minerals, feed additives, biotech products, and grain and oil seeds within the distribution activities.

• Moving forward, revenue is projected to achieve RM386.5m (+9% yoy), RM388.9m (+1% yoy), and RM630.8m (+62% yoy) for FY2023F, FY2024F, and FY2025F respectively, resulting in a CAGR of 39% in revenue from FY2020 to FY2025F. Notably, in FY2025F, a surge in the Group's financial performance is expected due to the assumed completion and operation of a new plant in 2HFY2025F translating to a higher annual capacity by threefolds, along with increased sales of swine vaccines to combat African Swine Fever (ASF), which has a mortality rate of up to 100%. The strong demand for the swine vaccine is anticipated to drive revenue growth.

• Net earnings are projected to reach RM28.8m (+33% yoy), RM27.9m (-3% yoy), and RM54.4m (+95% yoy) for FY2023F, FY2024F, and FY2025F respectively, with a margin of 7%, 7%, and 9% respectively. The slight increase in margins in FY2025F is attributed to stable revenue contributions from both the manufacturing and distribution segments.

• Potential beneficiary from the ASF (African Swine Fever). Despite the lower sales volume recorded in the latest financial year, Yenher could still capture some market share through its Distribution division. Moving ahead, the management are in talks with a few swine vaccine manufacturers and it takes about 2 years to bring in the vaccine to the country. We expect that the sales of vaccines will commence in FY2025.

• Extremely low gearing ratio. Yenher has demonstrated a commendable track record in maintaining a consistently low gearing ratio of 0.01x from FY2020 through the latest financial year of FY2022. With such a favourable gearing ratio, Yenher is well-positioned to leverage on its financial strength and pursue strategic investments that will further enhance its market presence and drive long-term sustainable growth.

• Continuously recorded a steady payout ratio above 40%. Since its listing, Yenher has consistently issued dividends, with a payout ratio of 43% in FY2021 and 41% in FY2022, accompanied by a dividend per share (DPS) of 3 sen for both years. Looking ahead, we anticipate a gradual increase in dividends, with projected DPS of 3.8 sen, 3.7 sen, and 7.3 sen for FY2023F, FY2024F, and FY2025F, respectively. These expected dividends represent a yield of 4%, 4%, and 8% for the respective years, reflecting the company's commitment to delivering attractive returns to its shareholders while maintaining a sustainable dividend policy.

• Segments that complement one another. Yenher operates in segments that complement and support one another, creating a synergistic business model. It is worth mentioning that the Group's primary driver of success is closely tied to the population of livestock. As the livestock population grows, the demand for Yenher's products and services increases, either way.

• Diverse product range for varied customer needs with an active after sales support team. To meet the diverse demands of customers, Yenher produces a range of age-specific premixes for the poultry and swine subsectors. In addition, its Distribution division offers complementary products including feed additives, vitamins, vaccines, and farm equipment. Yenher also offers value-added services to the customers’ such as veterinary technical services, nutritionists and chemists.

• In-house manufacturing capabilities with biotechnology value added. Yenher, a prominent player in the animal health industry, prioritizes continuous improvement in product and service quality. With an inhouse R&D team and manufacturing plant, Yenher has the capability to develop and formulate new products, offering customization and expansion options to meet customer needs.

• In-house laboratory. Yenher established an internal laboratory to conduct diagnostics and material analyses for their products. This allows them to evaluate the effectiveness of their products on customers' livestock.

Earnings & Valuation

• We initiate coverage on Yenher Holdings Berhad, a onestop centre for animal health and nutrition manufacturers and suppliers, with a BUY call with a DCF-based target price of RM1.125 with a WACC assumption of 5%. The perpetuity growth rate assumption is at 2.5%. The given target price implies 12.1x PER based on FY2024F EPS of 9.31 sen.

• We believe that fair value is justifiable by its i) steady gearing, ii) good track record, iii) higher margin and revenue generated compared to peers, iv) growth potential supported by strategic expansion plans, v) EPS, profit margin, and gearing ratio above industry average.

• Net earnings are projected to reach RM28.8m (+33% yoy), RM27.9m (-3% yoy), and RM54.4m (+95% yoy) for FY2023F, FY2024F, and FY2025F respectively with margins of 7%, 7% and 9%.

Key Risks

• Dependent on the livestock industry population.
• Outbreak of animal diseases.
• Market’s competitive landscape.
• Exposed to political, economic and regulatory risks.
• Price volatility and supply of raw materials interruption.
• Dependency and the business relationship with suppliers.
• Exposed to shipping disruption and fluctuation in shipping & freight rates.

Source: JF Apex Securities Research - 13 Jun 2023