No easy egg business ahead for Leong Hup

LEONG Hup International Bhd will likely be confronted by subdued sequential earnings given the resurgence in COVID-19 cases and respective country lockdowns will adversely impact poultry demand and hinder stability in average selling price (ASP) recovery of its poultry products.

For its Malaysian operations, Maybank IB Research observed that broiler ASPs have softened further since the re-imposition of the conditional movement control order.

“Going forward, we expect earnings volatility to continue as the pandemic causes uneven poultry demand recovery in Leong Hup’s country operations,” wrote analyst Jade Tam in a company update.

“However, poultry ASPs in Indonesia and Vietnam are experiencing an uptick in November as demand gradually improves leading up the festive season.”

Although raw material prices (corn and soybean) have been on an uptrend, it will not be a major concern for the company as it has already secured its requirement until 1Q FY2021, according to Maybank IB Research.

All-in, Maybank IB Research maintained its “hold” rating on Leong Hup with a target price of 71 sen based on unchanged regional peer average of 17 times its FY2021 price-to-earnings ratio (PE).

Nevertheless, AmBank Research begged to differ as it believes that supply shortage-induced stronger prices and solid performances from the Vietnam segment and The Baker’s Cottage will partially offset lingering pandemic effects in FY2021F.

“Leong Hup’s strong expansionary measures and developments into downstream production are also commendable measures,” opined the research house.

It reiterated its “buy” call on Leong Hup with an unchanged fair value of 91 sen/share based on a PE of 17 times FY2022F earnings per share.

At 9.42am, Leong Hup was down five sen or 0.72% at 68.5 sen with 153,300 shares traded, thus valuing the company at RM2.5 bil. – Nov 26, 2020

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