RHB Research said it continues to like LHI because the poultry player is well-positioned to capture the robust poultry consumption in the Asean region.
PETALING JAYA: Leong Hup International Bhd
(LHI) is seeing an improved operating environment in key markets including Malaysia and Indonesia, and this should sustain its earnings growth, says RHB Research.
The research firm added it continues to like LHI because the poultry player is well-positioned to capture the robust poultry consumption in the Asean region.
“Year-on-year (y-o-y) in the first half of financial year 2023 (1H23), revenue grew 6% to RM4.6bil.
“This was supported by healthy growth across all operating markets on the back of the broad reopening of economies.
“The Philippines market contributed the highest growth, as the group continued to expand its capacity in this newest market,” said RHB Research in a report.
Correspondingly, the research firm said that 1H23 earnings before interest, taxes, depreciation and amortisation (Ebitda) jumped 37% y-o-y to RM391mil.
This was following strong contributions from the Malaysian market as a result of a sales volume recovery.
The aid from a government subsidy had more than offset the softness in Indonesia and Vietnam.
The research firm noted that its second-quarter (2Q23) revenue climbed 10% quarter-on-quarter to RM2.4bil, primarily driven by better performance in Vietnam and Indonesia.
As a result, its Indonesia business managed to turn around in 2Q23, contributing an Ebitda of RM51mil.
“We expect LHI’s encouraging earnings growth to continue, as we believe the turnaround in Indonesia is sustainable – given the more balanced supply-demand dynamic in that market.
“These, together with the margin recovery from the cost pass-through in the Singapore market, compels us to believe that the impact of the challenging business environment in Vietnam can be mitigated,” said the research firm.
Meanwhile, AmResearch expects stability in the feedmill segment, given easing feed costs.
It noted that soybean prices have fallen by 11% to US$1,381 (RM6,412)per bushel, and corn prices have dropped by a significant 30% to US$477 (RM2,215) a bushel since their peaks in February 2023.
“We deem LHI’s 1H23 earnings of RM87mil as within our expectations, reflecting 40% of our full-year estimate, albeit 55% of consensus forecast. We expect 2H23 earnings to be sequentially stronger. Hence, we made no changes to our forecast financial year 2023 (FY23) to FY25 earnings,” it said.
As for valuations, AmResearch said the stock currently trades at a compelling FY23 price to earnings of nine times, which is half of its three-year average of 18 times.
