LHI’s 1Q20 core net profit of RM23.3m (QoQ: -44.7%; YoY: -61.3%) accounted for 13.9-17.2% of consensus and our full-year forecast. We consider the results within our expectation, as we anticipate earnings to come in stronger in 2H20, on the back of recent recovery in broiler prices (particularly, in Malaysia). Maintain earnings forecasts and TP of RM0.56 (based on 15x FY20 core EPS of 3.7 sen) and HOLD rating for now, pending more update with management.

Within our expectation. 1Q20 core net profit of RM23.3m (QoQ: -44.7%; YoY: - 61.3%) accounted for 13.9-17.2% of consensus and our full-year forecast. We consider the results within our expectation, as we anticipate earnings to come in stronger in 2H20, on the back of recent recovery in broiler prices (particularly, in Malaysia).

QoQ. 1Q20 core net profit fell 44.7% to RM23.3m, dragged mainly by (i) lower livestock feed sales volume and egg prices in Malaysia, (ii) lower livestock feed sales volume and day-old-chick (DOC) prices in Indonesia, and (iii) lower broiler chicken prices in Vietnam. Geographically, Singapore and Indonesia recorded higher EBITDA, and we believe this was due mainly to higher broiler chicken prices in Indonesia (which more than mitigated lower livestock feed sales volume and DOC prices).

YoY. 1Q20 core net profit fell 61.3% to RM23.3m, as higher contribution from livestock feed segment (arising from higher sales volume in Vietnam) was more than negated by (i) lower poultry product prices in Malaysia (including DOC, broiler chickens, and eggs), (ii) lower DOC sales volume and prices in Indonesia, and (iii) lower broiler chicken prices in Indonesia. Geographically, we note that most countries recorded lower earnings, with the exception of Vietnam, and this was due mainly to higher livestock feed sales volume.

Forecast. Maintain, pending more updates from the upcoming conference call.

Maintain HOLD with unchanged TP of RM0.56. We maintain our HOLD rating with an unchanged TP of RM0.56 (based on 15x FY20 core EPS of 3.7 sen, pending more update from management. At current level, LHI is trading at FY20-21 P/E of 15.9x and 12.2x, respectively. We believe re-rating catalyst would re-emerge when ASP for broiler products recovers, which hinges on Covid-19 outbreak subsiding and potentially more stimulus packages being announced.

Source: Hong Leong Investment Bank Research - 20 May 2020