Leong Hup to see better earnings in second half of the year on recovery

PETALINGJAYA: Leong Hup International Bhd’s (LHI) earnings are expected to come in stronger in the second half of this year on the back of recent recovery in broiler prices, particularly in Malaysia.

Hong Leong Investment Bank (HLIB) Research said a re-rating catalyst would re-emerge when average selling prices for broiler products recover.

But this hinges on the Covid-19 outbreak subsiding and potentially more stimulus packages being announced.

It said that LHI’S core net profit of Rm23.3mil for the first quarter ended March 31, 2020 was within its expectations, accounting for 13.9% to 17.2% of consensus and its full-year forecast.

Year-on-year, the group’s core net profit fell 61.3% to Rm23.3mil, as higher contribution from the livestock feed segment was more than negated by lower poultry product prices in Malaysia, lower day-old chick (DOC) sales volume and prices in Indonesia, as well as lower broiler chicken prices in Indonesia.

However, the group’s feedmill segment remained stable, as revenue rose 0.7% to Rm648.15mil from Rm643.63mil a year ago, underpinned by better sales volume of livestock feed in Vietnam. The group had operated against a backdrop of challenging operating environment which was exacerbated by the Covid-19 pandemic.

“Geographically, we note that most countries recorded lower earnings, with the exception of Vietnam.

“This was due mainly to a higher livestock feed sales volume,” HLIB Research added.

Meanwhile, Ambank Research anticipates a slight recovery in the selling prices in the subsequent quarters, as the movement control order (MCO) is relaxed and dine-ins at restaurants are allowed.

“We also see a gradual improvement in selling prices once the MCO is lifted in June 2020,” it said.

Moving forward, the research house believes the growth for financial year 2020 (FY20) will be largely driven by LHI’S expansion plans.

“We believe that the long-term outlook for LHI is positive due to the relatively stable demand for chicken and strong long-term earnings growth underpinned by expansions of the feedmill and livestock businesses in Malaysia, Vietnam and the Philippines,” it added.

Ambank Research is keeping a buy call on LHI with a lower fair value of RM0.72 per share from RM0.76 previously. Its fair value is based on 14 times the earnings per share for FY21.