October 11, 2023

 

Better prospects for Malaysia-based Leong Hup expected in H2 of FY2023

 

 

An expected recovery for livestock and poultry from Indonesia and Vietnam in the second half of financial year 2023 is expected to drive prospects for Malaysia-based Leong Hup International Bhd (LHI), said AmInvestment Bank (AmInvest) Research.

 

With demand for broiler day-old chicks in Indonesia and chickens in Vietnam having risen quarter-on-quarter between April and June for LHI, AmInvest is forecasting an improved revenue contribution from all countries that the poultry firm is operating in, namely Malaysia, the Philippines and Singapore, in the period.

 

"On its livestock and poultry operations in Vietnam, dynamics have recently improved compared to 2Q23," said AmInvest Research in a note. "This is underpinned by a gain in market share from smaller players exiting the business due to elevated operational cost and the ability to adjust for higher average selling prices from tight supplies of broiler chickens."

 

Citing data from Bloomberg, it is also expecting soybean meal prices to continue being volatile, albeit in a narrower range in H2 of FY2023. This is following the crop's 27% correction to US$370 per tonne, while corn prices have also dropped by a significant 29% to US$486 per bushel from their respective peaks in February 2023.

 

Notably, the research house reported that Leong Hup has indicated its overall feed mill plant utilisation rate has improved to 65% currently from 60% in the second quarter ended June 30 (2Q22).

 

"Hence, we expect better margins from the feed mill segment in 3Q23 on easing feed cost," AmInvest added. "Also, the improved margins will be contributed by the lag time in downward revision in average selling prices to the lower feed cost."

 

At the same time, AmInvest Research said the group's feed mill pelleting line with a capital expenditure requirement of RM4 million (US$846,076)  is targeted to be completed by the third quarter of 2023 in the Philippines.

 

Upon completion, the monthly capacity for producing its own feed mill will be doubled from 14,000 tonnes to 28,000 tonnes.

 

The securities firm believed that the completion of the pelleting line will help to improve production efficiency by streamlining the feeding process, resulting in better margins for the next fiscal year ending December 31, 2024.

 

"Despite the shortfall in 1H23, we expect LHI's earnings to improve in 2H23," AmInvest stated. "This will be supported by better earnings before interest, tax, depreciation and amortisation margin from the feed mill segment due to easing raw material cost, as well as demand recovery in Indonesia and Vietnam from 1H23."

 

- The Star