Maybank IB: Subdued poultry prices a drag on Leong Hup’s earnings

The group’s overall poultry and feedmill demand remain stable despite the resurgence Covid-19 cases within its regional operations


SUBDUED poultry average selling prices (ASPs) are likely to drag Leong Hup International Bhd’s earnings for financial year 2021, in the immediate term, said Maybank Investment Bank Bhd (Maybank IB).

The investment bank, in a note yesterday, stated Leong Hup International’s overall poultry and feedmill demand has remained stable despite the resurgence of new Covid-19 cases within Leong Hup International’s regional operations (Malaysia and Indonesia).

“We understand that poultry industry volume has declined by 10% to 15% since the global pandemic began.

“That being said, Leong Hup International is currently operating at full production capacity as it is able to fill in the supply gap left by smaller independent farmers that exited the business,” it said.

Maybank IB believed for the third quarter of 2020 (3Q20), poultry demand had gradually improved in Malaysia since the Conditional Movement Control Order (CMCO) was announced on May 4 and business activities resumed.

It, however, noted with the resurgence of the country’s Covid-19 cases this month, poultry ASPs could soften in 4Q20 as lockdowns have been imposed in affected districts. It added that Indonesia’s poultry ASPs were also expected to remain weak in 3Q20, and are likely to continue into 4Q20, if Covid-19 is not contained and consumer sentiment does not improve.

Maybank IB also lowered Leong Hup International’s financial year 2020 (FY20) and FY21 earnings estimates by 5% and 15% respectively, upon adjusting for weaker broiler and day-old chick ASPs for both Malaysia and Indonesia in light of slower-than-expected ASPs recovery post-MCO and risks of further ASP weakness from new Covid-19 cases.

“Feedmill demand is expected to be stable going forward which will partially mitigate earnings downside from volatile poultry ASPs,” it said.

Maybank IB maintained its ‘Hold’ call on Leong Hup International with a lower target price of 74sen.

Leong Hup International’s net profit grew marginally by 1.13% to RM16.27 million, or 0.45 sen per share, for 2Q ended June 30, compared to RM16.09 million, or 0.46 sen per share profit recorded in the previous corresponding quarter.

Its quarterly revenue declined 4.16% to RM1.43 billion from RM1.48 billion previously, according to the group’s filing to Bursa Malaysia.

The company declared an interim single tier dividend of 0.55 sen per share amounting to RM20.08 million, payable on Sept 30, 2020. This is 66% lower compared to 1.6 sen per share a year ago.

For the six-month period ended June 30, 2020, Leong Hup International’s net profit halved to RM38.06 million or 1.04 sen per share, from RM76.67 million or 2.21 sen per share in the previous corresponding period, while revenue inched down by 4.16% to RM2.86 billion against RM2.98 billion previously.