KUALA LUMPUR: RHB Research is retaining its buy recommendation on Leong Hup International Bhd (LHIB) with a new target price of 83 sen compared with Wednesday’s closing price of 66 sen.

       In its report on Thursday, it continues to like the stock as it believes the continuous capacity expansion – even during the pandemic – will place LHIB in a more dominant position than before to capture the robust poultry consumption in Asean.

       “Additionally, we think its downstream venture will create long-term value given the scalability and complementation with its incumbent poultry business. We also foresee LHIB expanding the franchise to other countries once its business model is further refined,” it said.

       On the outlook, RHB Research expects the feedmill business to see margins normalisation in 3Q21 through further cost pass-throughs.

       Meanwhile, the recovery in LHIB’s poultry business will largely hinge on the level of pandemic containment and lockdown enforcement in the respective countries.

       “Management expects the Indonesia and Vietnam markets to remain subdued in 3Q21. It has started to see recovery signs in markets like Malaysia and Singapore.

       “Meanwhile, commodity prices have started to moderate and management believes the underlying fundamentals are supportive of a sustainable price downtrend.

       “Conversely, the downstream retail business via The Baker’s Cottage is now earnings accretive and has effectively cushioned the impact of fluctuations in broiler ASPs. The value proposition of offering quality poultry-based meals at affordable prices has been well received by budget-conscious consumers, in our view,” it said.

       RHB Research made no changes to its earnings forecast, but revised its TP to 83 sen.

       “This is after applying a 4% discount in accordance with our in-house ESG overlay adjustments. The TP implies 14 times P/E FY22F – close to LHIB’s three-year mean,” it said.