Review

• Leong Hup International Bhd’s (LHI) 1HFY23 core earnings of RM87.2mn (+43.2% YoY) met ours and market’s expectation, accounting for 54% and 55% of full-year estimates, respectively.

• No dividend was declared for the quarter under review.

• YoY, 1HFY23 revenue rose 5.8% as driven by improved sales volume of Livestock segment (+4.1%) and Feedmill segment (+7.7%). The topline expansion chiefly underpinned by: (i) higher ASP across the board, and (ii) greater contributions from the Philippines, thanks to robust demand towards dressed chicken. In line with the sales growth coupled with improving ASP, the group’s EBIT jumped nearly two third, largely contributed by higher margin feedmill products in Vietnam, Philippines and Indonesia despite of partly offset by the decline in livestock segment’s margin due to rising input costs and OpEx.

• QoQ: 2QFY23 revenue grew 9.9% given the elevated ASP and growing sales volume in both livestock and feedmill segments. To note, Malaysia is the only country with negative QoQ revenue growth of 1.2% while the other regions logged at a single digit to mid-teen growth. We believe this could be due to higher sales demand towards broiler chicken during CNY festive in 1QFY23. All in, the group’s EBIT doubled QoQ to RM155.5mn in line with better margin as a result of higher ASP and sales volume.

Impact

• No changes applied to our earnings projections, pending guidance at the analyst briefing today.

Outlook

• As the key earnings contributor, we anticipate a resilient demand for poultry products in Malaysia, supported by strong domestic consumption and government measures to mitigate food inflation. That said, we hold a cautiously optimistic view on input costs, expecting stability with recent trends in corn and maize prices, but foresee no immediate price adjustments as inflationary pressures ease.

Valuation

• We maintain Buy with an unchanged TP of RM0.60/share based on 10x CY24 EPS.

Source: TA Research - 30 Aug 2023