INVESTMENT HIGHLIGHTS

• We initiate coverage on Leong Hup International Berhad with a BUY recommendation and TP of RM1.34 per share

• Our valuation is based on EPS20 of 5.6sen pegged to PER of 24.0x

• LHI is the largest integrated producer in Malaysia and the third largest in Indonesia and Vietnam

• It has benefited from economies of scale and we believe that its well-integrated business will continue to sustain earnings

Company Background

Leong Hup International Berhad (LHI) is a fully integrated producer of poultry, eggs and livestock feeds with operations in Malaysia, Singapore, Indonesia, Vietnam and the Philippines. Leong Hup was delisted in April 2012 following the privatisation exercise by Emerging Glory Sdn Bhd, a company owned by the founding Lau family. Based on annual production, LHI is the largest integrated producer in Malaysia and the third largest in Indonesia and Vietnam. The group has the largest market share of poultry slaughtered in Singapore. Overall, the group produced about 495.6m day-old-chicks (DOC), 99.1m of broiler chickens, 1.7b eggs and 2.0m MT of livestock feeds in FY17.

IPO Statistic

Leong Hup relisting to the Main Market of Bursa Malaysia constitutes an issuance of up to 937.5m shares. Through the public issuance, LHI targets to raise gross proceeds of RM275.0m. Upon listing, the enlarged issues share capital is of 3,650.0m shares.

Key investment thesis

i) Economies of scale,

ii) Vertically integrated business model, and

iii) Geographically diversified operation.

Valuation

We value LHI at RM1.34 per share based on pegging FY20F EPS of 6.0sen to target PER of 24.0x. This is premised on the average historical three-year mean PER of similar companies that engage in poultry operation. We believe the based PER derived is fair given the: (i) scale and broad presence of LHI’s operation; and (ii) verticallyintegrated nature of its business.

Source: MIDF Research - 2 May 2019