DESPITE its 9M FY2021 results disappointed on impact of severe lockdown measures – particularly in Indonesia and Vietnam – integrated poultry player Leong Hup International Bhd can expect earnings to rebound strongly in its 4Q FY2021 as demand and average selling prices (ASPs) normalise following the easing of lockdown restrictions in most countries.
Over the long term, RHB Research expects Leong Hup’s earnings sustainability to be underpinned by continuous capacity expansions and downstream ventures.
“Leong Hup’s established market position in ASEAN poultry markets also places it in a good position to capitalise on demand recovery,” projected analyst Soong Wei Siang in a results review
According to RHB Research, Leong Hup’s core net profit of RM47 mil (-22% year-on-year) met merely 25-26% of its and street’s estimates.
The negative deviation could be attributed to the worse-than-expected performance in Indonesia and Vietnam, stemming from the lockdown restrictions.
“Post results, we slash FY2021F earnings by 53% but keep FY2022-2023F numbers materially unchanged,” noted RHB Research. “Cukai Makmur’s (windfall tax) impact to FY2022F earnings is immaterial, according to management guidance.”
All-in-all, the research house kept its “buy” rating on Leong Hup with a discounted cash flow (DCF)-derived target price of RM83 sen (inclusive of a 4% ESG [environmental. social and governance discount).
“Feedmill operation margins should continue to recover on gradual cost pass-through while commodity prices have tapered off from the peak,” opined RHB Research.
“On a related note, the downstream venture via The Baker’s Cottage (TBC) has yielded positive results. TBC is projected to take up 30-40% of Leong Hup’s broiler supply once the store count is ramped up to 300 stores in 2023 from 168 stores currently.”
Elsewhere, TA Securities Research has also maintained its “buy” rating on Leong Hup but with a lower target price of 91 sen (from RM1.05 previously) as it remains positive that the group would deliver strong results as and when the COVID-19 pandemic subsides.
“Lifting of movement restrictions to varying extent in Leong Hup’s operating markets are expected to drive sequential improvement in 4Q FY2021,” reckoned analyst Jeff Lye Zhen Xiong. “This is on the back of continuous volume expansion, value chain integration and vigilant cost control.”
Moreover, recent Malaysian livestock’s broiler price has increased circa 40% against the price transacted in July as supply and demand found its equilibrium coupled with re-opening of dine-in services, according to TA Securities Research’s channel check.
At 10.40am, Leong Hup was up 0.5 sen or 0.9% to 56 sen with 3.18 million shares traded, thus valuing the company at RM2.05 bil. – Nov 24, 2021
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