Review

• Leong Hup International Bhd’s (LHI) FY23 core net profit of RM301.7mn (+37.8% YoY) met our expectations, at 105% and 102% of full-year estimates, respectively.

• No dividend was declared in this quarter.

• FY23 revenue grew by 5.5% YoY, driven by its livestock segment (+3.5% YoY) and feedmill segment (+7.9% YoY). The higher revenue was a result of higher ASP from an improved sales mix, better sales volume of eggs in Malaysia and higher sales volume in both Philippines (Dressed Chicken) and Indonesia (Broiler Chicken). Consequently, FY23’s EBIT rose 57.4% YoY (Livestock +99.2% YoY & feedmill +54.1% YoY), underpinned by higher ASP of eggs, greater ASP of feedmill in Vietnam, Indonesia and Philippines coupled with easing in raw material costs.

• In 4QFY23, EBIT dropped by 18.6% QoQ in tandem with a 4.1% QoQ drop in revenue. The weaker performance was dragged by the negative variance in Indonesia’s livestock segment, where both ASP (DOC & Broiler Chicken) and sales volume (DOC) decreased.

Impact

• We maintain our earnings projections, pending an analyst briefing today.

Outlook

• In 2024, the global prices of corn and soybean meal are expected to trend below the peak in 2022. We anticipate LHI’s feedmill margins to sustain at c.14% bearing the global prices of corn and soybean meal are less volatile.

• Based on the available data in the market, the price of broiler chicken per kg is trading at c.RM10-RM16 after the cessation of chicken subsidy (Ceiling price stood at RM9.4/kg before price control lifted). As a result, we expect revenue growth in 1HFY24 for the livestock segment due to higher ASP.

Valuation

• We put our Buy recommendation under review with a TP of RM0.67/share, pending management guidance at the analyst briefing today.

Source: TA Research - 28 Feb 2024