Review

• Leong Hup International Bhd’s (LHI) registered a commendable performance in 3QFY24. 9MFY24 core net profit of RM279.0mn surpassed both our and consensus’ full-year earnings projections at 96% and 90%, respectively. The positive variance was primarily due to lowerthan-expected feed costs, which resulted in reduced operating expenses.

• Despite a 1.9% YoY decline in revenue to RM7.0bn, core earnings surged 26.8% YoY to RM279.0mn, driven by stronger performance in the livestock and poultry-related segment, which offset weaker results in the feedmill segment.

• Livestock & Poultry Related Segment. Segmental revenue rose by 2.7% YoY to RM4.0bn in 9MFY24, driven by higher average selling prices (ASP) and increased sales volumes of day-old chicks (DOC) and broiler chickens in both Indonesia (+1.4% YoY) and the Philippines (+23.3% YoY).

• Meanwhile, 9MFY24 EBIT more than doubled to RM210.8mn mainly driven by: i) higher ASP for broiler chickens in Indonesia, boosting EBITDA margin to 8.1% (+3.0%-pts YoY), ii) a 41.3% YoY increase in Vietnam's EBITDA to RM137.6mn due to lower feed costs, and iii) a 99.9% YoY rise in the Philippines' EBITDA to RM91.4mn, supported by increased demand and ASP for DOC and broiler chickens in 3QFY24

• Feedmill Segment. 9MFY24 revenue dropped 7.3% YoY to RM3.0bn impacted by lower ASP and sales volumes in Vietnam (-12.0% YoY) and Malaysia (-4.2% YoY). Consequently, EBIT declined 5.5% YoY to RM405.2mn.

• The group declared a second-tier interim dividend of 1.45sen/share (3QFY23: 1.2/share), bringing its YTD dividend to 2.75sen/share (9MFY23: 3.0/share).

Impact

• We maintain our earnings projections at this juncture, pending an analyst briefing later today for further guidance.

Outlook

• Management remains optimistic about FY24, citing short-term margin expansion supported by lower feed costs and a stronger Ringgit. Notably, raw material prices have dropped YTD, with corn down 10.6% and soybean prices down 25.5%.

Valuation

• We maintain our target price of RM0.76/share based on CY25 PER of 9x. Reiterate Buy.

Source: TA Research - 27 Nov 2024