TA Research said Leong Hup is looking to expand its exports to Singapore after the lifting of restrictions in July 2023.
PETALING JAYA: Leong Hup International Bhd
is expected to see more robust earnings growth in the second half of financial year 2023 (FY23), driven by strong domestic consumption as well as expansion plans and positive sales trajectory in other regions.
TA Research said poultry company Leong Hup is looking to expand its exports to Singapore, since the lifting of restrictions in July 2023.
TA Research noted the group will maintain a positive sales trajectory in Indonesia and Vietnam, following the double-digit quarter-on-quarter growth recorded in the previous quarter on the back of robust demand for poultry goods.
The company is also likely to benefit from the proposed elimination of the price cap on chicken and eggs as well as the end of government subsidies for poultry products, as it will regain some pricing power.
Regaining pricing control will allow Leong Hup to hedge against unfavourable fluctuations in feed prices and foreign currencies.
Since July 1, 2023, the ceiling price for broiler chicken has been adjusted to RM9.40 per kg with a subsidy of 80 sen per kg.
However, retail prices for broiler chicken have dropped below the ceiling price due to an easing in feed costs, particularly corn and soybean, which have declined about 35% and 25%, respectively.
TA Research is positive on Leong Hup as corn and soybean made up for about 70% and 25% respectively of the company’s key ingredients in its feed mill business.
“Looking forward, we believe the improving operating environment will boost the group’s FY23 and FY24 earnings projections by 11% and 14.3%, respectively,” the research house stated.
This will be backed by the reduction in feed mill costs for corn and soybean which are now at US$520 per bushel and US$1,080 per bushel compared with US$560 per bushel and US$1,400 per bushel, respectively, in the past.
Due to a reduced number of competitors, Leong Hup looks set to be a beneficiary of resilient demand in the poultry space.
TA Research noted the competitor pool has shrunk due to smaller chicken farmers shutting down operations owing to operational deficiencies following the surge in production costs in 2022.
The research firm added it would take at least six to eight months to bring a new poultry production business to full operational level, despite the softening in soybean and corn prices in 2023.
“We believe Leong Hup will capitalise on its prominent position as a vertically integrated poultry operator across its geographical portfolios to maximise profitability,” the research house said.
TA Research adjusted its earnings projection on Leong Hup upwards for FY23, FY24 and FY25 by 11%, 14.3% and 8.3%, respectively, to reflect the improving conditions.
It maintained a “buy” call on Leong Hup with an adjusted target price of 89 sen per share based on recalibrated 13 times 2024 earning per share.
