Executive Summary

The report on Leong Hup International (LHIB MK) by Maybank Investment Bank Berhad provides an in‐depth review of one of ASEAN’s largest integrated poultry players. With operations spanning Malaysia, Singapore, Indonesia, Vietnam, and the Philippines, LHIB demonstrates a balanced poultry demand-supply dynamic across its regions. The report maintains an overall positive outlook on the company with a consistent BUY recommendation. The target price has been revised lower to MYR 0.75 based on an updated mean PER and solid operating fundamentals.

Investment Thesis and Recommendation

Maybank IBG maintains a BUY rating on LHIB based on its robust market positioning and stable poultry ASPs across key regions. Current channel checks indicate that Indonesia’s poultry ASPs are improving, expecting a QoQ increase of +9% to +14% for both broiler and day-old-chick (DOC) segments in 4Q24. Meanwhile, Malaysia and Vietnam continue to exhibit steady ASPs amid domestic industry consolidation and gradual demand growth. This favorable demand-supply balance is expected to sustain elevated livestock EBITDA margins, even as cost pass-through dynamics in feed raw materials (with significant easing in corn and soybean ASPs) may lead to gradual softening of feedmill EBITDA margins.

The company’s revised earnings estimates for FY24 have been raised by 16% upon adjusting for current operating run rates, while FY25E and FY26E estimates remain unchanged. With these adjustments, the updated valuation uses a mean PER of 8x (down from 9x previously). The comprehensive analysis supports the revised BUY recommendation with a lower target price of MYR 0.75.

Market & Operational Dynamics

Poultry Demand-Supply and ASP Trends

LHIB benefits from balanced poultry demand and supply landscapes across its geographical operating footprint. In Indonesia, the progressive improvement in poultry ASPs has been visibly supported by better market dynamics, offering uplifts of between 9% and 14% QoQ for both the broiler and DOC segments. In Malaysia and Vietnam, poultry ASPs have remained resilient as a result of continued industry consolidation and steady, if modest, domestic demand growth. At the end of 3Q24, Indonesia, Malaysia, and Vietnam contributed 37%, 25%, and 20% respectively to the group’s revenue, confirming a diversified regional revenue base.

Key Raw Materials and Cost Pressures

A notable driver of LHIB’s improved margins lies in the significant easing of feed raw material costs. According to Bloomberg data, average corn and soybean ASPs fell by approximately 24% and 22% YoY, respectively, in 2024. Although these lower inputs are expected to keep livestock EBITDA margins elevated in the near term, the benefits may partly be offset by a gradual softening in the margins of LHIB’s feedmill operations as the company passes along its cost savings to customers.

Financial Performance & Valuation

Revised Earnings & Key Metrics

The financial analysis reveals an adjusted upward revision of FY24 earnings estimates by 16%, with FY25E and FY26E figures remaining in line with previous guidance. The report details revenue figures of MYR 9,084.3 million for FY24E, with core net profit estimates reaching MYR 371.0 million. With an average core P/E ranging from 6.1x to 8.3x across recent periods and a target forward estimate using a PER of 8x, the valuation remains attractive.

Key profitability ratios, including an EBITDA margin of 8.5% in FY22A rising to an estimated 12.6% in FY23A, further underscore the company’s operational efficiencies. Despite cost pass-through effects in feed segment margins, steady livestock margins support the overall positive earnings outlook.

Balance Sheet and Cash Flow Analysis

LHIB’s balance sheet illustrates a robust asset base with total assets rising to MYR 8,889.7 million in FY24E and total shareholder equity projected to reach MYR 3,697.6 million. The company maintains healthy liquidity metrics with a current ratio trending from 1.2 in FY22A to an estimated 1.6 in FY24E. The gearing ratio shows strong deleveraging trends, with net gearing (including perpetuals) improving from 91.5% in FY22A to an estimated 47.5% in FY24E.

On the cash flow front, LHIB reported cash flows from operations consistently strong over the past years, with free cash flow generation remaining positive. Despite capex requirements and dividend distributions, the net cash increase supports the firm’s