LEONG Hup International Bhd’s overall poultry and feed mill demand have remained stable but the resurgence of new COVID-19 cases within the company’s regional operations (Malaysia & Indonesia) may have adverse effect on its business outlook.
Maybank IB Research expects subdued poultry average selling prices (ASPs) to spill over to FY2021, thus be a drag to an uplift in the group earnings for the immediate term.
In its Malaysian operation, poultry ASPs could soften in 4Q 2020 as lockdowns are imposed in districts affected by the COVID-19 pandemic.
“Separately, Indonesia’s poultry ASPs are also expected to remain weak in 3Q20 and is likely to continue into 4Q 2020 if COVID-19 is not contained and consumer sentiment does not improve,” wrote analysts Jade Tam and Desmond Ch’ng in a company update.
Although poultry industry volume has declined by 10-15% since the global pandemic began, Tam and Ch’ng believe that 3Q 2020 poultry demand has also gradually improved in Malaysia since the conditional movement control order (MCO) was announced on May 4 and business activity resumed.
Moving forward, Maybank IB has lowered Leong Hup’s FY2020-FY2021 earnings estimates by 5-15% upon adjustment for weaker broiler and day-old-chicks ASPs for both Malaysia and Indonesia in light of slower-than-expected ASPs recovery post-MCO and risks of further ASP weakness from new COVID-19 cases.
“However, feed mill demand is expected to be stable going forward which will partially mitigate earnings downside from volatile poultry ASPs,” added the research house.
On the same note, Maybank IB also reduced Leong Hup’s target price to 74 sen (from 87 sen previously) while maintaining a “hold” rating on the company.
At 12.30pm today, Leong Hup was down 0.5 sen at 70.5 sen with 634,700 shares traded, giving the company a market capitalisation of RM2.57 bil. – Oct 21, 2020