This article first appeared in The Edge Financial Daily on November 27, 2019 - December 3, 2019

KUALA LUMPUR: After a drastic 76% earnings contraction in the preceding quarter, Leong Hup International Bhd’s net profit returned to growth path in the third quarter ended Sept 30, 2019 (3QFY19) thanks to better performance in its feed mill business.

The poultry group’s net profit expanded 26% to RM44.38 million in 3QFY19 from RM35.21 million a year ago.

The feed mill segment saw its earnings before interest, taxes, depreciation and amortisation (Ebitda) doubled to RM133.48 million from RM66.66 million.

The segment’s improved earnings are due to higher sales recorded in Indonesia, as well as higher contribution from Vietnam, following the commencement of operations of the Dong Nai feed mill plant in January.

Its quarterly revenue grew 7.35% to RM1.53 billion, from RM1.42 billion a year ago.

For the cumulative nine months period, Leong Hup’s net profit, however, was 21.2% at RM121.05 million or 3.43 sen per share, from RM153.55 million or 4.52 sen per share last year, although its revenue grew by 7.6% to RM4.51 billion, from RM4.19 billion.

The cumulative earnings were weighed by the lower contribution from its livestock and poultry related products, on lower margin arising from depressed prices of day-old-chicken (DOC) in Indonesia as well as the depressed broiler chicken prices in Indonesia and Vietnam.

In a statement yesterday, its group chief executive officer Tan Sri Lau Tuang Nguang (pic) said that while Indonesia and Vietnam are expected to continue to see growth and contribution towards the group’s bottom line, Leong Hup has also taken steps to strengthen its geographical diversification.

According to Lau, Leong Hup is venturing into the Myanmar market to tap on its meat consumption that is expected to grow in tandem with the domestic economy. “We intend to penetrate the market through the livestock segment,” said Lau, but noting that the venture into Myanmar is at a preliminary stage and thus, is not expected to make any material contribution for FY19 and FY20.

Leong Hup, which made its debut in mid-May, is trading below its initial public offer price of RM1.10. It closed at 90 sen yesterday with a market capitalisation of RM3.29 billion.