February 23, 2024

Malaysian firm Leong Hup International to expand feed mill capacity and boost automation

Malaysian firm Leong Hup International Bhd is poised for growth, leveraging higher feed mill capacity and stable commodity prices, as the company's strategic automation initiative in feed mills aims to reduce labour dependency and operational costs, The Star reported.

According to AmInvestment Bank (AmBank) Research, Leong Hup has successfully automated its livestock feed production mill in Port Klang, streamlining processes from crushing to packaging. This automation has significantly reduced labour requirements, with a production line now operating with 18 staff per shift, down from 24 previously. The resulting 25% reduction in personnel costs bodes well for the company's bottom line.

Additionally, the group has expanded its capacity in the Philippines, completing a second pelleting line in the third quarter of 2023. This expansion doubles its capacity in the region from 14,000 tonnes to 28,000 tonnes per month.

On the commodities front, AmBank Research predicted a downward trend in corn and soymeal prices, attributing it to ample market supply. This favourable pricing environment is expected to support Leong Hup's margins, allowing the company to pass on any increased costs to clients while maintaining profitability.

With a current feed mill utilisation rate of 65%, Leong Hup is anticipated to sustain its market presence in the poultry industry amidst ongoing local demand. The company is well-positioned to capture market share from smaller players exiting the market due to operational challenges.

Looking ahead, Leong Hup plans to invest in a slaughtering plant in Yong Peng, Johor, with a capital expenditure of RM18 million (US$3.7 million). Expected to be operational by the third quarter of 2025, the plant will have a capacity of 24,000 birds per day, partially funded through borrowings.

Despite economic uncertainties, AmBank Research maintains a positive outlook on Leong Hup, reiterating a 'buy' recommendation with an unchanged fair value of RM0.95 (US$0.20) per share. This valuation is pegged to the company's financial year 2024 price-earnings multiple of 11 times, reflecting confidence in its growth trajectory.