Comprehensive Analysis of Leong Hup International by Maybank Investment Bank Berhad

Date: November 27, 2024

Broker: Maybank Investment Bank Berhad

Introduction

In this thorough analysis, Maybank Investment Bank Berhad provides an insightful examination of Leong Hup International (LHIB MK), focusing on its recent financial performance and future outlook. This detailed report breaks down the company’s financial metrics, market position, and potential risks, offering a valuable guide for investors interested in the integrated poultry industry spread across Malaysia, Singapore, Indonesia, Vietnam, and the Philippines.

Leong Hup International: Steady Growth Despite Market Challenges

Overview and Financial Performance

Leong Hup International (LHIB) has maintained a “BUY” recommendation with an unchanged target price (TP) of MYR0.85 by Maybank Investment Bank Berhad. The company’s third-quarter results for 2024 surpassed expectations, driven by group margin expansion due to lower feed raw material costs. Despite the suppressed poultry average selling prices (ASPs) in Indonesia, which could lead to weaker fourth-quarter earnings, LHIB’s earnings outlook remains positive in the medium term, supported by manageable feed raw material costs and favorable foreign exchange movements.

Key Financial Metrics

• 3Q24 Net Profit: MYR135 million, a 2% year-on-year (YoY) increase and a 40% quarter-on-quarter (QoQ) rise, bringing the 9M24 net profit to MYR288 million, marking a 31% YoY growth.
• Revenue: 3Q24 revenue saw a 5% QoQ decline, primarily due to weaker livestock sales and lower feedmill sales.
• EBITDA: Group EBITDA increased by 4% QoQ, with improved livestock margins.
• Government Subsidies: LHIB received MYR37 million in back payments of government subsidies in 3Q24.

Market Position and Strategy

LHIB is an integrated poultry player operating in multiple Southeast Asian markets. The company has strategically positioned itself to capitalize on the region’s growing demand for poultry and feed products. Despite some market volatility, LHIB’s robust EBITDA margins, driven by lower feed raw material costs, provide a strong foundation for future growth.

Outlook and Recommendations

Despite potential challenges in the Indonesian market, the overall outlook for LHIB remains positive. With stable poultry demand in Malaysia and Vietnam, and a focus on cost management and operational efficiency, the company is well-positioned to maintain its growth trajectory. The “BUY” recommendation is based on a 9x FY25E PER (mean), reflecting confidence in LHIB’s ability to navigate market fluctuations and deliver shareholder value.

Risk Analysis

The report acknowledges several risk factors that could impact LHIB’s earnings estimates and target price. These include market volatility in selling prices, demand-supply imbalances in feed and poultry, and potential disease outbreaks affecting poultry operations. Such risks necessitate a cautious approach to investment, although the overall outlook remains optimistic.

Conclusion

Maybank Investment Bank Berhad’s comprehensive analysis of Leong Hup International highlights the company’s strengths and growth potential amidst challenging market conditions. With a strategic focus on margin expansion and cost efficiency, LHIB continues to be an attractive investment opportunity in the consumer staples sector. Investors are encouraged to consider the detailed financial metrics and market insights provided in this report to make informed investment decisions.