MIDF Research remains optimistic about Leong Hup’s mid to long-term outlook.
PETALING JAYA: Leong Hup International Bhd
aims to further reduce total borrowings to lower finance costs in the current high interest rate environment.
The integrated poultry breeder’s net gearing ratio decreased to 0.6 times in the first quarter of financial year 2024 (1Q24) from 0.8 times in 1Q23, mainly due to lower total borrowings.
The group is also committed to a dividend payout of at least 30% of profit after tax going forward, said MIDF Research.
The research house remained optimistic about Leong Hup’s mid to long-term outlook and this is supported by resilient demand for poultry products.
This is due to the staple-food nature of poultry and the softening of global commodity prices for livestock feed, reducing raw material costs in the livestock and poultry-related product segment.
MIDF Research said it is confident the group is well positioned to capture underserved demand in Vietnam and the Philippines.
It maintains its “buy’’ call on the stock with a target price of 70 sen a share and made no changes to its earnings forecast, as earnings came in within expectations.
TA Research tweaked its FY24-FY25 earnings upwards by 4.2% and 6.7%, respectively, after increasing its revenue assumptions to 4.1% and 5.6% for FY24 and FY25.
Capital expenditure (capex) of RM200mil to RM300mil has been planned for FY24, the research house said.
Some key projects include a new slaughtering plant in Yong Peng, Johor, with a capacity of 24,000 birds per day, which is 50% complete and expected to be finished by 3Q25.
Additionally, a new raw material warehouse at the Tarlac feedmill in the Philippines is set to increase capacity by 25%, with completion expected by 3Q24, said MIDF Research.
TA Research said the group aims to emphasise further downstream expansion by focusing on processing and business-to-customer channels.
The research house reiterated its “buy” recommendation with a revised target price of 71 sen from 67 sen based on nine times 2025 earnings per share based on the average selling price of day-old chicks having increased to RM2.40 each from RM1.70 each, while broiler chicken rose to RM6.05 per kg from RM5.90 per kg in 1Q24.
MIDF Research said the group’s profitable performance was being driven by higher prices and resilient demand from Indonesia, which offset the normalised outlook for its operations in Malaysia.
The research house said the downside risks to its call include higher-than-expected raw material costs, adverse regulatory changes such as price controls or culling programmes, shortages of day-old chicks and disease outbreaks.
