LHI: Earnings Outperform on Cost Efficiencies, Analyst Maintains ‘BUY’ Rating

A leading player in the consumer sector recently reported first-half fiscal year 2025 results that largely met analyst expectations, with core net profit reaching RM192.1 million. This performance, representing 53% of TA Securities’ full-year estimate and 52% of consensus, was achieved despite an 8.8% year-on-year contraction in revenue to RM4.3 billion. The robust earnings growth was primarily fueled by significant operational efficiencies and strategic financial management.

Performance Highlights

The company’s core earnings saw a substantial 25.5% year-on-year increase. This uplift was attributable to several key factors, including improved margins within its Livestock & Poultry Related segment, driven by lower feed input costs. Additionally, the first half benefited from a higher recognition of government subsidies, amounting to RM69.1 million compared to RM9.2 million in the previous corresponding period. Further contributing to the improved profitability were lower interest expenses.

Segmental Performance

While overall earnings were strong, the Livestock & Poultry Related Segment experienced a challenging second quarter of FY2025, with EBIT declining 31.1% year-on-year to RM58.2 million and revenue dropping 5.1% year-on-year to RM1.3 billion. This segment’s weakness was largely concentrated in its Indonesia operations, where EBITDA plunged 88.8% year-on-year, primarily due to lower average selling prices for Day-Old Chicks (DOC) and broilers, alongside reduced DOC sales volume. However, cumulatively for 1HFY25, the segment’s EBIT improved 12.5% year-on-year to RM113.5 million, supported by margin expansion in core markets like Malaysia, Vietnam, and the Philippines, boosted by higher ASPs and lower feed costs.

Similarly, the Feedmill Segment saw its revenue contract by 15.5% year-on-year to RM832.0 million in 2QFY25, impacted by weaker ASPs in Indonesia and lower ASPs and volumes in Vietnam and Malaysia. Despite the revenue decline, EBIT for the segment decreased at a more moderate pace of 8.5% year-on-year to RM123.1 million, cushioned by easing input costs. For 1HFY25, Feedmill revenue fell 17.4% year-on-year to RM1.7 billion, with EBIT easing by 9.7% year-on-year to RM254.1 million. The company did not declare a dividend for the quarter.

Future Outlook and Recommendation

Management noted that egg prices had declined in 2QFY25 following the removal of subsidies and price ceilings. However, the cost savings being passed on to consumers are expected to stimulate volume growth in the second half, bolstered by improved pricing competitiveness. Notably, table egg sales volume already showed an increase in 2Q. TA Securities has maintained its FY25-27F earnings projections.

The investment bank reiterated its BUY call on the company with an unchanged target price of RM0.81 per share. This target price represents a significant upside of 26.6% from its last traded price of RM0.64.