KEY INVESTMENT HIGHLIGHTS

• 4QFY19 normalised earnings came in at RM40.4m (+25.6%yoy) which met our and consensus’ expectations

• Earnings was dragged by lower average selling price of livestock products

• However, commendable performance of Feedmill operation continue to support earnings

• Maintain NEUTRAL with a revised TP of RM0.82

Earnings met expectations. Leong Hup International Berhad (LHI)’s 4QFY19 recorded earnings dropped by -9.5%yoy to RM29.5m. Nevertheless, after excluding one-off item, 4QFY19 normalised earnings came in at RM40.4m (+25.6%yoy). This brings its full year FY19 normalised earnings to RM167.2m which met ours and consensus expectation, accounting for 97.8% and 96.6% of full year FY19 forecast respectively. Overall, the 4QFY19 earnings was impacted by the poor performance of livestock and poultry related segment. During the quarter, there was a significant reduction in average selling price (ASP) of products sold by the group. Nonetheless, this was mitigated by the higher sales volume of livestock feed in Vietnam.

Livestock and poultry related products. Despite the positive growth in sales volume for broiler chickens and eggs, the livestock and poultry related products’ 4QFY19 EBITDA suffered significant decline of -23.9%yoy to RM51.0m. The poor performance was primarily due to: (i) lower profit margin arising from subdued prices and lower sales volume of day-old-chicks (DOC) and; (ii) depressed ASP of broiler chickens and eggs in Malaysia. These contributed to the subdued EBITDA growth of Indonesia, Singapore and Malaysia operation which dropped by -51.3%yoy, -37.1%yoy and -7.6%yoy respectively.

Feedmill operation. Meanwhile, Feedmill operation’s 4QFY19 revenue rose by +3.5%yoy while EBITDA grew at a faster pace of +9.7%yoy. These were attributable to the increase in sales volume of livestock feed in Vietnam. Consequently, this lifted 4QFY19 EBITDA for Vietnam operation by +59.6%yoy to RM41.9m. Note that the new feedmill plant in Dong Nai, Vietnam has begun operation since January 2019 and it has been supporting group’s earnings growth ever since.

Impact to earnings. We are revising our FY20F and FY21F earnings forecasts downward by -3.8% and -3.4% to take into account the lower ASP of the group’s products. Note that the reduction in ASP was partially mitigated by a higher sales volume.

Source: MIDF Research - 19 Feb 2020