Yenher achieved its strongest quarterly performance since listing, with 3Q24 core earnings climbing 26.2% QoQ and 20.7% YoY, bringing 9M24 core earnings to RM16.8m (+9.3% YoY). This growth was driven by robust premix sales to the poultry segment. The group is making solid progress across key initiatives, including its premix and complete feed expansion, Denmark JV in biotech feed additives and its new BSF venture, positioning itself to tap into high-growth markets. With all of its new capacities on track for commissioning by end-FY25, Yenher will significantly expand its production, setting the stage for an exciting multi-year growth trajectory starting from FY26. Maintain forecasts and our BUY rating with a TP of RM1.45 based on 16x mid-FY26 EPS.

Best quarter since listing. To recap, in Yenher achieved its strongest quarterly performance since listing, with 3Q24 core earnings surging to RM6.6m (+26.2% QoQ; +20.7% YoY), bringing 9M24 core earnings to RM16.8m (+9.3% YoY). However, headline earnings declined by -10.6% QoQ and -10.9% YoY to RM4.5m, primarily due to forex losses of -RM1.7m during the quarter. These losses stemmed from USD-denominated prepayments made when the ringgit was weaker. As the ringgit strengthened sharply during quarter, (i) realized forex losses were incurred upon delivery of goods; and (ii) unrealized forex losses arose from revaluing undelivered goods at the stronger ringgit.

Overlooked business growth. The impressive underlying results may have been overlooked due to the decline in headline earnings, creating a misleading perception of a weaker operational performance. In reality, Yenher’s operational growth was robust, driven by higher premix manufacturing sales to the poultry segment, supported by the acquisition of new customers. This momentum also boosted the distribution segment, as the group capitalized on its expanded customer base to cross-sell other distributed products.

New factory progress is on track. As at Dec 2024, the group’s new factory construction has achieved 75% completion (see Figure #1). Machines for premix have already arrived and installation should commence in Jan 2025. On the other hand, machines for feedmill is estimated to arrive by Apr, while installation should take around 6-7 months. This puts the group on track to achieving commissioning of the plant before end-FY25. The new plant will increase the production capacity of premix manufacturing by 4.5x, while also expanding into the new segment of complete feed, catering to poultry, swine, aquaculture and pet food.

Filling up the capacity. The premix segment's plant utilisation stands at 110-120%, with workers meeting surplus orders through overtime. To cater to the upcoming additional capacity from the new factory, Yenher is targeting export markets, with marketing efforts set to scale as plant commissioning nears. As for the new complete feed segment for poultry and swine, strong latent demand is evident as many poultry farmers now opt for complete feed with their own formulations, driving full capacity utilisation across feed millers. Yenher has already received orders in this segment, producing at a small scale in-house and outsourcing some production to third parties. Given the strong demand, Yenher is confident of scaling up utilisation for this division to over 50% within a short timeframe.

New aquaculture and pet segments. The aquaculture segment offers significant potential as local farmers still rely on primitive feeding methods, such as using scrap fish, resulting in poor feed conversion and nutrient utilisation. Yenher aims to produce complete feed, which could transform the industry, much like how the poultry sector evolved 50-60 years ago to widespread adoption of complete feed. As aquaculture farmers gradually embrace modern feed solutions, this segment represents a large addressable market which is now in its early growth stage. Meanwhile, Malaysia’s pet food industry is still developing compared to more advanced markets like Thailand. However, demand is rising due to growing affluence and the humanisation of pets, where owners increasingly view pets as family members, driving demand for premium, high-quality pet food.

JV with Denmark. Yenher is progressing well in its biotech feed additives JV with a Denmark-based partner. It has begun distributing the partner’s products and recently signed a distributorship agreement with a Vietnam partner, expanding into a new market. On the manufacturing front, the JV plans to convert its current warehouse into production facilities starting Mar/Apr, aiming to commence production by endFY25.

Venture in BSF. Yenher recently announced a JV, Yenbio, to venture into Black Soldier Fly (BSF) cultivation. We see vast potential in this venture given that Malaysia has several natural advantages from (i) tropical climate favourable for BSF cultivation, which reduces energy costs needed for temperature regulation; (ii) abundance of high quality raw material like palm oil waste; and (iii) low land costs, minimizing start-up expenses. Yenbio plans to set up its facility near oil palm plantations, ensuring convenient access to raw materials and reducing logistics costs. The JV will adopt a low-capex production model using ponds for cultivation instead of high-cost vertical farming, which requires robotic systems. This approach is commercially viable given Malaysia’s low land cost, which eliminates the need to prioritise space utilisation. On the demand side, Yenher will offtake BSF oil and meal for animal feed production, while the third byproduct, frass, will be sold as fertilizer, unlocking multiple revenue streams.

From recovery to growth. Yenher has emerged from its toughest period during 2022-2023, when premix sales to the swine segment declined sharply due to the African Swine Fever outbreak. The group pivoted to scaling up premix sales to the poultry segment, which has begun to show results, as reflected in the strong 3Q24 performance. Looking ahead to FY25, further growth in poultry premix sales is anticipated, along with higher contribution from new product distribution from its Denmark JV. Additionally, the manufacturing segment is poised for GP margin expansion, supported by a stronger ringgit on a YoY basis. By end-FY25, all of Yenher’s new capacity, including in premix, complete feed, biotech feed additives, and BSF production is expected to come online, driving a significant boost to revenue in FY26.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM1.45 based on P/E of 16x pegged to midFY26 EPS. Yenher has successfully navigated past challenges and is now strategically positioned to capitalize on significant growth opportunities. With the new facilities set to significantly enhance production capabilities, the group is poised to enter an exciting multi-year growth trajectory.

Source: Hong Leong Investment Bank Research - 14 Jan 2025