KUALA LUMPUR (Oct 23): RHB Investment Bank has maintained its “buy” call on Leong Hup International Bhd, with a higher target price (TP) of 72 sen, from 63 sen previously, and said the integrated poultry, egg and livestock feed producer's near-term earnings outlook was bullish.

In a note on Monday, the research house said that this was in view of improving market conditions in Indonesia and the robust performance of its anchor operations in Malaysia.

RHB said it sees Leong Hup capturing the growing demand for poultry products in Asean markets with its continuous capacity expansion.

The research house believes that the cessation of the ceiling price regulation and subsidy programmes for chicken and eggs, as announced in Budget 2024, is neutral for the poultry industry and Leong Hup’s Malaysian operations, as RHB expects the average selling price adjustments post-price floatation to offset the impact of subsidy removals.

RHB said it did not expect prices of poultry products to spike significantly when the prices are floated, taking into account eased commodities prices and more stable supply-demand industry dynamics.

The research house believes demand will remain resilient, as poultry products are the cheapest source of protein.

RHB expects Leong Hup's third quarter ended Sept 30, 2023 (3QFY2023) to see more explosive growth.

"Following a sharp [quarter-on-quarter] earnings jump (almost 3x) in 2QFY2023, we anticipate the robust momentum to sustain into 3QFY2023," said the research house.

RHB said it maintained its earnings forecasts for Leong Hup pending the release of the company's third quarter ended Sept 30, 2023 (3QFY2023) results on Nov 28.

RHB highlighted that the current prices of corn and soybean meal — the key ingredients of poultry feed — have fallen 28% (corn) and 17% (soybean meal), off 2023’s year-to-date peak.

"This should support profit margin of livestock and feedmill businesses across all operating countries," said RHB.

RHB said it raised its discounted cash flow-derived TP after rolling over its valuation base year and reviewing its risk assumptions.

"The new TP is inclusive of a 4% ESG discount and implies 11.4x FY2024F P/E, which is close to its five-year mean," it said.

RHB said the risks to its recommendation include a sharp rise in input costs and unfavourable supply-demand dynamics.

At the time of writing, Leong Hup shares dipped 1.64% or one sen to 60 sen with 2.46 million shares transacted.