LHI: Earnings Beat Expectations on Cost Efficiencies and Indonesia Recovery
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading player in the poultry sector has reported financial results that significantly exceeded expectations for the first nine months of fiscal year 2025 (9M25). The robust performance was primarily driven by stronger-than-expected profit margins, cost efficiencies, and a notable recovery in the Indonesian market.
Performance Review
For 9M25, core net profit reached MYR310 million, an 11% year-on-year increase, outperforming both analyst and consensus forecasts by a significant margin. This strong showing was attributed to resilient profit margins supported by favourable market conditions and a reduction in feed costs. Consequently, analysts have revised upwards their earnings forecasts for FY25F-27F by 14%, 12%, and 10% respectively.
Despite a 6% year-on-year decline in 9M25 revenue to MYR6.6 billion, largely due to lower average selling prices (ASPs) reflecting reduced feed costs and the impact of a strengthened Malaysian Ringgit on overseas operations, the company’s profitability remained strong. While 9M25 EBITDA saw a marginal 3% dip, primarily due to a 46% decline in Indonesia which was offset by solid performance in other key operating markets, the core net profit benefited significantly from a 26% reduction in interest expenses and lower minority interests dilution.
The third quarter of 2025 (3Q25) alone demonstrated impressive momentum, with revenue growing 4% quarter-on-quarter and core net profit surging 30% QoQ. This remarkable sequential improvement was largely fueled by the strong recovery in the Indonesian market, supported by improved market conditions.
Future Outlook
Looking ahead to 4Q25, the Malaysian market may experience softer earnings as the full effect of the egg subsidy termination takes hold. However, strong earnings contributions from Indonesia are expected to persist, underpinned by elevated ASPs.
Beyond the immediate term, the industry’s fundamentals are viewed as having improved significantly. The phasing out of smaller and weaker players following the pandemic and commodity supercycle has led to a more consolidated industry, which is highly advantageous for large operators like Leong Hup International (LHIB). The company is well-positioned to capitalize on this trend, bolstered by a sturdier balance sheet with net gearing having shrunk considerably from 1.1x in FY22 to 0.39x in 3Q25. Strategic capacity expansion is expected to further enhance market share and operational efficiency.
Key risks to this positive outlook include a sharp rise in input costs and adverse demand-supply dynamics within the industry.
Investment Bank’s View
Reflecting the positive performance and outlook, TA SECURITIES maintains a BUY recommendation on the stock, with a target price (TP) of RM0.25, representing a 25.0% upside from the last traded price of RM0.20.
