PETALING JAYA: Leong Hup International Bhd
is set to benefit from higher feedmill capacity and stable commodity prices, while the company’s automation drive of seed mills is to lower its reliance on labour and save cost.
AmInvestment Bank (AmBank) Research noted that the integrated poultry concern had automated its livestock feed production mill in Port Klang and covers processes from crushing to packaging.
“We understand that a production line now only requires 18 staff per shift compared to 24 previously.
“This helps to reduce dependency on labour, resulting in a 25% reduction in personnel cost,” it stated in a recent report on Leong Hup.
The research house added that the group has also completed a second pelleting line in the Philippines in the third quarter of 2023 (3Q23), which increases its capacity there from 14,000 tonnes to 28,000 tonnes per month.
On its raw commodities input side, AmBank Research said it expects corn and soymeal prices on the world market to continue trending lower this year on sufficient supply in the market.
This should help Leong Hup maintain its margins, helped by the group’s ability to pass on any higher cost to clients and backed by the assumption that the group will make an average pre-tax margin of 10% to 12% for the feedmill segment from 4Q23 onwards.
The research house also expects the utilisation rate of its feedmills, which stands at 65% now, to be maintained this year due to the sustained demand for poultry products locally.
Thus, AmBank Research remained positive on expectation that Leong Hup will continue to gain market share from smaller players exiting the business due to elevated operational cost; and enjoy a gradual increase in revenue from an expansion in production capacities to supply more poultry to Indonesia and the Philippines.
“The group will be investing in a slaughtering plant with a capital expenditure (capex) allocation of RM18mil in Yong Peng, Johor.
“The plant is expected to be completed by 3Q25 with a capacity of 24,000 birds per day. It will be partially funded through borrowings,” AmBank Research added.
Leong Hup’s management guided for a 2024 capex of RM200mil to RM300mil to be utilised in Malaysia, Indonesia and the Philippines for maintenance purposes.
“We reiterate our ‘buy’ call on Leong Hup with an unchanged fair value of 95 sen a share, pegged to its financial year 2024 price-earnings multiple of 11 times,” AmBank Research noted.
