Review

• Leong Hup International Bhd’s (LHI) 1QFY24 core net profit of RM56.6mn met our expectations, representing 21% of ours and consensus’ full year estimates.

• 1QFY24 core net profit surged by 2.6-fold YoY to RM56.6mn, in tandem with revenue growth of 9.8% YoY to RM2.4bn. The better performance was driven by improved sales and margin enhancement in both the Livestock and Feedmill segments. However, 1QFY24 core net profit declined by 30.7% QoQ, primarily attributed to lower government subsidies recognized in this quarter amounting to RM9.2mn, compared to RM103.0mn recorded in 4QFY23.

• Livestock Segment: 1QFY24 EBIT reached RM16.6mn as compared to the LBIT of RM53.4mn reported a year ago. The improvement spurred by enhanced margins in Indonesia (EBITDA margin +10.5%-pts YoY to 6.8%) and Vietnam (EBITDA margin +1.4%-pts YoY to 6.3%). Meanwhile, revenue grew 9.7% YoY to RM1.3bn, thanks to higher ASP of broiler chicken in Vietnam and Indonesia, increased sales volume of broiler chicken in the Philippines and improved sales volume of Day-Old Chicks (DOC) in Indonesia.

• Feedmill Segment: Segmental EBIT rose by 11.0% YoY to RM146.9mn, while revenue improved 9.9% YoY to RM1.1bn. Revenue growth was underpinned by volume expansion in both Indonesia and Philippines, ASP hike in Indonesia and improved margin in Philippines due to lower cost incurred in 1QFY24.

• No dividend was declared for the quarter under review.

Impact

• We maintain our earnings projections, pending an analyst briefing today.

Outlook

• Management expects an improvement in consumer confidence following the introduction of the new civil servant wage structure and the adjustment in the Employee Provident Fund (EPF) withdrawal scheme.

• To recap, FY23 EBITDA margin has reach a record high of 11% over the past 5 years, primarily due to the easing of raw material costs. Looking ahead, the group expects the EBITDA margin to gradually normalise back to approximately 9.5% to 10% over the long term, supported by stable market conditions.

Valuation

• We reiterate our Buy recommendation with an unchanged TP of RM0.67/share, based on CY24 PER of 9x.

Source: TA Research - 31 May 2024