Leong Hup’s outlook seen positive on stable demand for chickens

Leong Hup International Bhd
(Feb 19, 77 sen)
Maintain buy with a lower fair value of RM1.02:Leong Hup International Bhd’s (LHI) core net profit for the financial year ended Dec 31, 2019 (FY19) of RM167.2 million, after excluding an impairment loss on receivables of RM16.6 million, was in line with our and consensus earnings estimates — 97.1% and 96.6% of full-year forecasts respectively.

However, our earnings forecasts for FY20 and FY21 are trimmed by 2.4% and 3.4% as we expect persistently soft selling prices in the near term. Our FY22 earnings forecast of RM243.8 million is introduced as well.

LHI’s FY19 revenue increased 5% year-on-year (y-o-y) but its earnings before interest, taxes, depreciation and amortisation (Ebitda) were flattish at RM650.5 million.

Its Ebitda margin slipped 0.6 percentage point to 10.7% mainly due to depressed selling prices of several products in Indonesia, Vietnam, Singapore and Malaysia.

The livestock and poultry-related product segment’s revenue for the fourth quarter ended Dec 31, 2019 (4QFY19) fell 3.7% y-o-y on lower selling prices for Malaysia’s day-old chicks, eggs and broiler chickens.

Revenue contribution from LHI’s poultry operations in Vietnam improved 16% y-o-y to RM374 million, on higher selling prices and sales volume of broiler chickens due to robust demand for chicken meat. We believe this was due to the swine fever in Vietnam, resulting in consumers substituting pork with chicken meat.

Revenue for FY19 of the livestock division dipped 2% y-o-y to RM3.4 billion, mainly due to the disposal of a subsidiary in its Singapore operations.

The revenue drop at 17% y-o-y to RM779.1 million from Singapore was offset by higher revenues in Indonesia and Vietnam.

We remain convinced that LHI’s long-term outlook is positive due to stable demand for chickens and a strong long-term earnings growth underpinned by the feedmill and livestock businesses’ expansion in Malaysia, Vietnam and the Philippines. —AmInvestment Bank, Feb 19