June 6, 2023

Poultry demand-supply problem, weak feed sales put Malaysia's Leong Hup in tight spot

Ongoing poultry demand-supply imbalances in Indonesia and subdued feed sales in Vietnam are expected to continue to plague Malaysia's Leong Hup International Bhd in the quarters ahead, according to analysts.

Maybank Investment Bank (Maybank IB) Research said the integrated poultry, eggs and livestock feed producer's core net profit for the first quarter of 2023 (1Q23) saw a 9% increase year-on-year (y-o-y) to RM22million (US$4.8 million). This was 9% and 10% of its and consensus' full-year estimates, respectively, it said.

"The group's 1Q23 results fell short on depressed poultry average selling prices (ASPs) in Indonesia and lower-than-expected feed mill sales in Vietnam. The disappointment was predominantly due to its Indonesia livestock segment," Maybank IB added. "Meanwhile, 1Q23 group revenue of RM2.2billion (US$478.6 million, up by 5% year-on-year) was in line with our financial year 2023 (FY23) estimate."

On a quarter-on-quarter basis, Leong Hup's revenue dropped by 5% due to lower sales contribution from both its livestock and feedmill segments.

"Malaysia and Vietnam sales were down 6% q-o-q and 15% q-o-q, respectively, due to lower poultry and feed ASPs, along with softer sales volume in both segments," Maybank IB Research said.

It added that prolonged poultry oversupply, depressed ASPs amid higher feed raw material costs in the group's Indonesian operations led to a further decline in Leong Hup's earnings before interest, taxes, depreciation and amortisation by 43% quarter-on-quarter."Although Malaysia's livestock and feed mill operations are expected to see continued recovery, this will be hindered by ongoing poultry demand-supply imbalances in Indonesia and subdued feed sales in Vietnam, given the swine flu outbreak.

"The swine flu outbreak in Vietnam also led to 1Q23 ebitda decline of 45% q-o-q through lower feed demand," Maybank IB said. It lowered its forecast for Leong Hup's earnings for FY23, FY24 and FY25 by 61%, 40% and 17%, respectively, upon adjusting for lower broiler and day old chick (DOC) ASPs in Indonesia.

- The Star