Better second half for Leong Hup seen as poultry prices recover

PETALING JAYA: Leong Hup International Bhd is expected to achieve a better second half year on the back of improving average selling prices (ASP) for day-old-chicks (DOC), broiler and eggs, according to AmResearch.

According to statistics published by the Department of Veterinary Services, since end-June 2019, prices of eggs in Malaysia have risen by 7% while that of broiler chicken and DOCs have increased by 12% and 22% respectively.

“We remained convinced that the long-term outlook for Leong Hup is still positive given the stable demand of chicken while its source of income outside Malaysia such as Singapore Vietnam, Indonesia and the Philippines will provide growth potentials for the group,“ the research house said.

On the other hand, soybean price climbed 4% and there was an uptick in corn price which rose by 24% in 10 weeks from May to July 2019, which AmResearch believes contributed to the higher ASPs.

“We opine that the surge in corn price was due to historically low planting levels in the US as a result of widespread flooding.”

Compared to FY18, average year-to-date (YTD) prices rose by circa 10% for eggs while for broiler and DOC, they have dropped by 9% and 4% respectively. Soybean and corn prices slipped by 5% and 0.7% respectively.

“We believe the drop in poultry prices in Malaysia was due to the cooler weather YTD which may have led to a higher market supply.”

According to the research house’s sensitivity analysis, a 10% increase in prices of Malaysian eggs, DOC and broiler chicken will lift earnings by 0.6%, 0.5% and 0.7% respectively. Malaysian eggs, broiler and DOC made up circa 4%, 6% and 6% respectively of the group’s revenue. Corn and soybean account for circa 19% and 17% of Leong Hup’s total cost of sales.

“Taking this into consideration, we expect Leong Hup’s earnings trajectory and margins to be in line with our forecasts with ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 11.9% in FY19.”

AmResearch maintained its buy call on Leong Hup with an unchanged fair value of RM1.17 a share.

source https://www.thesundaily.my/business/better-second-half-for-leong-hup-seen-as-poultry-prices-recover-ED1544053