KUALA LUMPUR: Following a strong earnings beat, Leong Hup International Bhd
is expected to sustain its recovery momentum going into 4QFY22 while its longer-term prospects have also improved.
In its results review, RHB said seasonal demand and lower feed costs should bolster the poultry and egg farmer's prospects in the final quarter of the year.
The research firm noted however that the operating environment in Indonesia remains challenging and should continue to offset some of the growth from Leong Hup's other markets.
"Post-results, we raise FY22F earnings by <15% but keep FY23-24F forecasts materially unchanged.
"Our discounted cash flow-derived target price also stays at 61 sen (inclusive of a 4% ESG discount), implying 13x price-earnings FY22F – below its three-year mean," it said.
RHB is also bullish on Leong Hup's longer-term prospects as less volatile - albeit elevated- commodity prices should bode well for poultry operators as it would help to facilitate cost pass-throughs.
Coupled with the expectation of further normalisation in consumption and Leong Hup’s continuous capacity expansion, RHB projects FY23 earnings to grow by 18% year-on-year.
"Beyond the prospects of a near-term earnings rebound, we continue to like LHI as a major proxy to capture the growth of consumption in Asean – thanks to its established market presence, operational efficiency and continuous capacity expansion to expand market share.
"The stock’s market valuation is undemanding – it is trading at levels well below the three-year mean," said RHB.
In 9MFY22, Leong Hup's results strongly beat forecast due to a strong recovery in its sales and margins.
RHB said core net profit of RM128mil, a 170% jump over the corresponding 2021 period, accounted for 88% of its and 108% of consensus full-year estimates.
