Review

• Leong Hup International Bhd’s (LHI) 9MFY23 core net profit of RM220.1mn (+71.7% YoY) beat ours and the street’s expectation, came in at 122% and 114% of full-year estimates, respectively. The surprises largely contributed by higher sales performance across the boards and regions amid easing COGS condition.

• The group proposed a second interim dividend of 1.2sen/share for the quarter under review, lifting its cumulative dividend to 3.0sen/share.

• YoY, the 9M23 revenue grew 6% YoY, primarily driven by improving sales performance of livestock segment (+4.7% YoY) and feedmill segment (+7.7% YoY), crediting to overall higher selling price and sales volume of broiler chickens, DOC, and eggs across the regions. Consequently, the group saw a substantial uptick in EBIT (+87.1% YoY) in tandem with revenue growth, largely due to easing in COGS and better operational environment.

• QoQ, 3Q23 revenue rose by 4.2%, thanks to the same factors as stated above. Nonetheless, the group highlighted that part of the revenue growth was offset by lower ASP of livestock feed in Vietnam. That said, the EBIT jumped 71.5% significantly on the back of improving profit margin from higher ASP.

Impact

• In tandem with the significant profit jump in 3Q23, we adjust upward our FY23-25 earnings forecasts by 79.5%/37.5%/46.1%, respectively, as reflective of easing key input costs and robust demand.

Outlook

• Amidst the softening of key input costs, specifically corn and soybean meal, we expect LHI to experience a notable upturn in profit margins in the near term, bolstered by strong demand for poultry products.

• With the Malaysian government's cessation of price control in November 2023, we anticipate this move would provide new momentum for poultry operators. This adjustment is vital to counter the price volatility, allowing for appropriate price adjustments as we approach the year-end festival season.

Valuation

• We maintain Buy with a higher TP of RM1.03/share based on 11x CY24 EPS.

Source: TA Research - 29 Nov 2023