Steady earnings seen for Leong Hup

Maybank Investment Bank Research (Maybank IB) said strong earnings are expected to persist for Leong Hup in sequential quarters.

PETALING JAYA: Leong Hup International Bhd’s earnings are expected to remain steady, as average selling prices (ASP) for poultry are anticipated to be sustained during the current movement control order (MCO 3.0).

AmInvestment Bank Research in a report yesterday noted that the widespread adoption of takeaway and delivery-based consumption is likely to sustain hotel, restaurant and cafe demand, similar to MCO 2.0 in January.

“Additionally, poultry ASP is positively affected by seasonal cold weather and festive season effects, ” it said.

Following a briefing with Leong Hup, the research house added that the company is confident that ASP of eggs would recover in the next couple of months.

“Egg suppliers have been cutting production since the Salmonella scare in March. Given the long production cycle of layers, we believe that the effects of the supply-reduction will only take place in the coming months.”

Separately, MIDF Research said supply and demand for poultry products should be more balanced compared with last year.

“Despite the new wave of Covid-19 infections in some countries it operates in such as Malaysia, Vietnam and Singapore, consumers have adapted to the new norm, which is likely to result in a much more balanced supply-demand for poultry products.

“As such, we expect the ASP for poultry products to hold up better compared with last year. That said, we do not rule out a fluctuation in consumer sentiment throughout the year, which may tilt prices. However, Leong Hup’s geographical diversity is likely to help cushion any weakness in certain markets.”

MIDF Research added that any hike in raw material prices will likely be manageable.

“We understand that Leong Hup was able to lock in some agricultural commodities at favourable prices previously. On top of that, it will be passing on the higher feedmill costs to its customers.”

Meanwhile, Maybank Investment Bank Research (Maybank IB) said strong earnings are expected to persist for Leong Hup in sequential quarters.

“While poultry demand has not recovered to pre-pandemic levels, demand-supply has balanced out, in our view, given the exit of small-independent farmers during the peak of the pandemic.”

Based on its channel checks, Maybank IB said domestic poultry ASP had also sustained above RM5 (for broiler) and RM2 (for day-old-chicks) in the second quarter of 2021 thus far.

“That said, feedmill segment margins are expected to taper off in 2021 in light of rising raw material prices. We raise our 2021,2022 and 2023 earnings estimates by 30%, 14% and 15% respectively after adjusting for lower interest expense and higher other income.”

Maybank IB nevertheless added that Leong Hup is subject to market volatility when it comes to selling prices and demand and supply imbalances, both in feed and poultry.

“Moreover, poultry is vulnerable to disease and epidemic outbreaks that could further exacerbate demand-supply imbalances.” the research house said.

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