Leong Hup International earnings revised upward
Better price stability seen for poultry average selling prices
PETALING JAYA: Maybank Investment Bank Research (Maybank IB) has revised its earnings revision upwards for Leong Hup International Bhd (LHIB), amid better price stability for poultry average selling prices (ASPS).
“Against our previous expectations of prolonged weak prices amidst slower business activity post-movement control order (MCO), we are more assured in price stability in the near term as higher poultry ASPS in LHIB’S respective countries of operations have sustained throughout the second quarter of 2020.
“Our 2020, 2021 and 2022 earnings estimates are lifted by 72%, 41% and 41%, respectively, as we impute for 15%, 13% and 13%, respectively, higher Malaysia and Singapore broiler ASPS,” it said in a report.
With that said, Maybank IB cautions that Malaysian ASPS could be adversely impacted, depending on the potential re-entry of production supply from smaller independent farmers in the second half of 2020 amid gradual poultry demand improvement.
The research house said lower industry supply led to Malaysia’s poultry ASP spike.
“Given reduced industry supply upon the exit of many independent farmers during the MCO, second-quarter 2020 Malaysian poultry ASPS staged a strong recovery from mid-may 2020 onwards due to demand-supply imbalances.”
Maybank IB said broiler and day-old chick (DOC) ASPS peaked at RM5.80 per kg and RM2.40 per chick respectively as at end-june 2020.
“Year-on-year, we estimate that second-quarter 2020 broiler and DOC ASPS have grown 8% and 21%, respectively. However, with exceptionally low average broiler ASPS during the MCO in April (circa RM2.10 per kg), quarter-on-quarter ASP increase is likely narrower at 3% (broilers) and 7% (DOC).
“Regional poultry ASPS (Indonesia and Vietnam) have also seen an increase following the easing of lockdown measures in respective countries,” it said.
With the acquisition of The Bakers Cottage (TBC), the research house said LHIB has carved out an avenue for sales stability in the mid-term, as it steadily grew its store presence in the quick-service restaurant industry.
“There are currently 50 TBC outlets with plans to reach 80 outlets by end-2020 and 300 outlets by 2023.
“However, we have not imputed TBC’S earnings into our model yet as it is still in its gestation period.
“On average, it takes three to four years for a new TBC store to break-even, we understand.”
LHIB’S revenue stood at Rm1.43bil for the first quarter ended March 31, 2020, compared with Rm1.51bil in the preceding year’s corresponding quarter.
Profit after tax and minority interests stood at Rm21.8mil, compared with Rm60.6mil, weighed down by the overall softness in demand amid the onset of the Covid-19 pandemic and weak prices.