KUALA LUMPUR: MIDF Research said it is optimistic over Leong Hup International Bhd
's mid-to-long-term outlook as the cost of livestock feed trends lower, while demand grows in foreign markets.
"Our outlook is supported by resilient demand for poultry products due to their staple food nature and the softening of global commodity prices for livestock feed, reducing raw material costs in the livestock and poultry-related product segment," said the research firm said in a note.
In addition, it said the poultry, egg and livefeed producer is well-positioned to capture underserved demand in its Vietnam and Philippines market.
MIDF, which attended the group's analyst briefing, reported that Leong Hup's feedmill sales grew 2.5% year-on-year (y-o-y) to 665,000 per tonne with external sales being its largest contributor at 63%.
Meanwhile, the group's broiler day-old chicks (DOC) sales volume increased a marginal 1% y-o-y to 146.6 million in 1QFY24, due to improved operations in Malaysia, Vietnam and the Philippines.
Broiler chicken sales volume rose 8.2% y-o-y to 43.7 million birds due to the robust sales in the Philippines (24% y-o-y), followed by Malaysia and Vietnam.
Egg sales volume surged by 12.4% y-o-y to 504.9 million in 1QFY24 due to higher demand in Malaysia and Vietnam.
On balance sheet, Leong Hup's net gearing ratio decreased to 0.6x in 1QFY24 from 0.8x in 1QFY23 mainly due to lower total borrowings.
"Moving forward, management aims to further reduce total borrowings to lower finance costs in the current high interest rate environment.
"The group is also committed to a dividend payout of at least 30% of profit after tax going forward," said MIDF.
MIDF kept its target price of 70 sen on the share on unchanged earnings estimates as the group's 1QFY24 results came within expectations.
Meanwhile, TA Securities Research adjusted its FY24-26 earnings forecast higher by 4.2% to 6.7% after increasing its revenue assumptions by 4.1% to 5.6%.
"We reiterate our 'buy' recommendation with a revised target price of 71 sen per share (previously 67 sen per share) based on 9x 2025 earnings per share," it said in a its company update.
