• Maintain BUY, with new MYR0.63 TP from MR0.61, 27% upside and c.3% yield. FY22 results were a strong beat on better-than-expected margin recovery. Notwithstanding the risk of volatile commodity prices affecting margins, we believe Leong Hup International is well placed to capture the robust poultry consumption in the ASEAN region with its established presence. We also think the group has gained market share as the pandemic phased out weaker industry players. Valuation is undemanding at 9x P/E FY23F, way below the historical mean of 13x.

• FY22 results significantly exceeded expectations. Core net profit of MYR204m (+138% YoY) accounted for 120-121% of the forecasts on stronger-than-expected margin recovery. However, we opt to keep our FY23F-24F earnings materially unchanged given the uncertainty of industry outlook and commodity markets. We roll out FY25F earnings (+16% YoY). Meanwhile, our DCF-derived TP is inched up to MYR0.63 after updating the full-year numbers. The TP is inclusive of a 4% ESG discount and implies 12x FY23F P/E, which is below the stock’s 4-year mean of 13x.

• Results review. YoY, FY22 revenue jumped 26% to MYR9bn with most operating markets recording solid growth on the back of consumption recovery and higher ASPs to reflect the much higher feed costs. However, Singapore saw flattish revenue growth in FY22, affected by the export ban on chicken from Malaysia. Group EBITDA surged 43% YoY to MYR765m, in line with topline growth and further boosted by cost pass-through. The Malaysia unit was the biggest contributor thanks to robust consumption growth and the aid of government subsidy whilst the Philippines market grew the fastest from a low base. QoQ, 4Q22 revenue inched down 2% to MYR2.3bn due to softer ASPs in Indonesia and Vietnam but was mitigated by the resilient showing in Malaysia. That said, 4Q22 core net profit jumped 12% to MYR75m on the reflection of lower feed costs for the quarter.

• Outlook. Essentially, we think earnings should sustain going into FY23F supported by consumption growth, while all operating markets are expected to see healthy economic growth and sustained recovery from the pandemic. That said, the strong 4Q22 margin may moderate, taking into consideration the rebound in commodity prices. Malaysia should continue to exhibit solid growth backed by resilient consumer spending and the government subsidy but Indonesia is expected to see more challenging times given the weak consumer spending. Meanwhile, the Philippines will be the focus of capacity expansion going forward as the group has continued to gain traction from a low base.

• Risks to our recommendation include a sharp rise in commodity prices and weaker-than-expected consumption.

Source: RHB Research - 1 Mar 2023