KUALA LUMPUR (May 20): RHB Research has maintained its "buy" call on Leong Hup International Bhd (LHI) but trimmed its  target price to 88 sen (from RM1.16) on weak product prices and volumes in key markets for the first quarter ended March 31, 2020 (1QFY20) amid the pandemic and the lockdown enforcement.

In a note today, RHB Research said LHI may stage a recovery in 2QFY20 earnings if price rebounds can be sustained.

"We like LHI for its regionally diversified presence and poultry products' long-term consumption growth as the cheapest source of proteins," RHB said.

It said Covid-19 and the resultant lockdowns being enforced regionally may have put tremendous pressure on consumption, hence the fall in average selling prices and volumes.

"That said, we gather that product prices recovered in Malaysia and Indonesia in May, probably due to the easing of lockdown initiatives and supply chain adjustments.

"Additionally, the upcoming Aidilfitri festival could also lift consumption. Should the strong prices sustain and volumes normalise moving forward, 2QFY20 could see LHI stage a strong earnings recovery," it noted.

The research house added this should be further underpinned by robust growth in Vietnam, supported by capacity expansion.

It said LHI's core net profit of RM23.1 million for 1QFY20 was below expectations because it met only 11% and 16% of their consensus' forecasts.

"The negative deviation could mainly be attributed to weaker-than-expected product prices and volumes in key markets like Malaysia and Indonesia.

"Post results, we cut FY20F-22F earnings by 23%, 13%, and 7%.

"Risks to our recommendation include unfavourable changes in regulatory policies and supply-demand dynamics," said RHB.

At 11.19 am, shares in Leong Hup were unchanged at 59 sen, valuing it at RM2.15 billion. It saw 936,500 shares traded.