by ANIS HAZIM / pic by TMR FILE
LEONG Hup International Bhd’s continuous its capacity expansion to be a dominant player in the poultry industry in Asean.
RHB Investment Bank Bhd (RHB Research) analyst Soong Wei Siang in a research note yesterday said that Leong Hup’s downstream ventures will create long-term value given the scalability and complementation with its incumbent poultry business.
The analyst also foresees Leong Hup to expand its franchise to other countries once its business model is further refined.
On its business outlook, RHB Research expects Leong Hup’s feedmill business to see margins normalisation in the third quarter of 2021 (3Q21) through further cost pass-throughs.
“Meanwhile, the recovery in Leong Hup’s poultry business will largely hinge on the level of pandemic containment and lockdown enforcement in the respective countries,” he said.
The analyst noted that Leong Hup’s expects its Indonesia and Vietnam markets to remain subdued in 3Q21.
“It has started to see recovery signs in markets like Malaysia and Singapore. Meanwhile, commodity prices have started to moderate and management believes the underlying fundamentals are supportive of a sustainable price downtrend,” he stated.
Conversely, the group’s downstream retail business via The Baker’s Cottage is now earnings accretive and has effectively cushioned the impact of fluctuations in broiler average selling prices.
“The value proposition of offering quality poultry-based meals at affordable prices has been well received by budget-conscious consumers, in our view,” he added.
RHB Research keeps its ‘Buy’ call on Leong Hup with a revised target price to 83 sen and 26% upside, based on 14 times price-to-earnings (P/E) FY22F, close to its three years mean.
“This is after applying a 4% discount in accordance with our in-house environmental, social and governance overlay adjustments,” he further said.