AmInvest Research retains buy on Leong Hup but lower FV


  • Analyst Reports
  • Wednesday, 20 May 2020

Leong Hup Industries’ 1QFY20 core net profit of RM21.8mil (-64% YoY; -46% QoQ) missed earnings expectations, coming in at around 13% of AmInvest Research and consensus’ full-year estimates.

KUALA LUMPUR: AmInvestment Research is maintaining its Buy call on Leong Hup International (LHI) with a lower fair value (FV) of 72 sen a share from 76 sen previously. It said on Wednesday its FV for LHI was based on 14 times FY21 EPS.

LHI’s 1QFY20 core net profit of RM21.8mil (-64% YoY; -46% QoQ) missed earnings expectations, coming in at around 13% of AmInvest Research and consensus’ full-year estimates.

“Although we believe poultry prices will remain subdued, we do anticipate a slight recovery in selling prices in 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.

However, it reduced LHI’s net profit by 5.4% for FY20F, 4.9% for FY21F and 4.4% for FY22F to account for weaker EBITDA margins.

LHI was hit by lower selling prices as demand from fast food restaurants fell significantly during the MCO.

“We lower our selling price and sales volume assumption by roughly 2% to 5%. We believe there was a short-term push for selling prices in May due to a temporary closure of a poultry processing plant in Pedas, Negeri Sembilan where some workers contracted Covid-19.

“The Kerabat Processing House has a slaughtering capacity of 90,000 birds per day. However, we believe the increase in selling price will be short-lived as supply of poultry returns when the plant resumes operation, ” it said.

AmInvest Research said LHI’s 1QFY20 revenue dropped 5% YoY (-7% QoQ) but EBITDA tumbled 38% YoY (-17% QoQ). EBITDA margin fell 5ppt YoY (-1ppt QoQ).

This was mainly due to depressed selling prices of several of its products across Indonesia, Vietnam, Singapore and Malaysia.

The livestock and poultry-related product segment’s 1QFY20 revenue fell 9% YoY (-11% QoQ). This was on the back of lower selling prices for Malaysia’s DOC, eggs and broiler chicken. Sales volume of DOC also slid YoY.

Feedmill segments’s 1QFY20 revenue inched up 1% (-3% QoQ) primarily due to higher sales volume of livestock feed in Vietnam but partially offset by lower selling prices and sales volume of livestock feed in Indonesia.

EBITDA for the segment jumped 40%YoY (+25% QoQ). EBITDA margin soared 5ppt YoY (+4ppt QoQ) on the back of higher sales volume in Vietnam.

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