ANALYSTS HAVE MIXED CALLS ON LEONG HUP INTERNATIONAL’S OUTLOOK

KUALA LUMPUR, May 20  -- Analysts have mixed calls on Leong Hup International Bhd (LHI) after the poultry company posted a net profit of RM21.79 million in the first quarter ended March 31, 2020 (Q1 2020), a decline of 64 per cent from RM60.58 million recorded in the same period last year.

RHB Investment Bank Bhd Research (RHB Research) has maintained a “buy” call on LHI with a lower target price (TP) of 88 sen from RM1.16 previously.

AmInvestment Bank Bhd Research (AmBank Research) also kept its “buy” call on the company with a lower fair value of 72 sen per share versus 76 sen per share previously.

MIDF Amanah Investment Bank Bhd Research (MIDF Research) retained its “neutral“ call on the poultry-based company with a revised TP of 60 sen from 82 sen previously while Maybank Investment Bank Bhd (Maybank IB Research) has revised downwards its recommendation to “sell” from “hold” with a lower TP of 56 sen from 61 sen previously.

In a research note today, RHB Research said there are signs of recovery in the company’s businesses in Malaysia and Indonesia despite a disappointing Q1 2020 results due to consumption being affected by COVID-19 pandemic and lockdown enforcements.

“COVID-19 and the resultant lockdowns being enforced regionally may have put tremendous pressure on consumption, hence the fall in average selling prices (ASPs) and volumes. 

“That said, we gather that product prices recovered in Malaysia and Indonesia in May, probably due to the easing of lockdown initiatives and supply chain adjustments,” it said.

The upcoming Aidilfitri celebration it said, could also lift consumption and should the strong prices sustain, and volumes normalise moving forward, LHI could stage a strong earnings recovery.

This should be further underpinned by robust growth in Vietnam supported by capacity expansion, it added.

AmBank Research in a separate note believed that the long-term outlook for LHI is positive due to the relatively stable demand of chicken and strong long-term earnings growth underpinned by expansions of the feed mill and livestock businesses in Malaysia, Vietnam and the Philippines. 

“Moving on to subsequent quarters, we expect poultry prices to recover slightly as restaurants restart operations for dine-ins. We believe the growth for the financial year 2020 will be largely driven by LHI’s expansion plans,” it said.

MIDF Research, in another note, said poultry is a staple commodity and one of the cheaper source of protein despite a challenging near-term outlook on the industry.

“Hence, we think that demand may eventually recover. We opine that LHI’s earnings will be supported by economies of scale, vertical integration and geographical diversification,” it said.

Meanwhile, Maybank IB Research has cut LHI’s financial year 2020/2021/2022 earnings estimates by 50 per cent/27 per cent/28 per cent after imputing for weaker poultry ASPs.

“We expect sequential earnings to be weaker as Malaysian day-old-chicks (DOC) and broilers prices continued trending downwards in April before showing signs of an uptick when the Conditional Movement Control Order (CMCO) was implemented at the beginning of May,” it said.

For Indonesia, it said the current poultry oversupply might be prolonged as demand is adversely impacted by COVID-19.

At 10.47 am, LHI’s share was unchanged at 59 sen with 936,500 shares changing hands.

-- BERNAMA