This article first appeared in Capital, The Edge Malaysia Weekly on February 26, 2024 - March 3, 2024

Target price: 95 sen BUY

AmInvestment Bank Research (Feb 19): We reiterate our “buy” call on Leong Hup International (LHI) with an unchanged fair value of 95 sen/share pegged to an FY24 PER of 11 times, in line with its three-year historical mean. Our earnings forecasts are maintained, following our recent visit to the feedmill plant in Port Klang, Selangor, and broiler farm in Sungkai, Perak.

According to Nasdaq commodities data, corn prices dropped 38% to US$418/bushel in February 2024 from a peak of US$678/bushel in April 2023, while soybean meal prices declined 27% to US$333/bushel in February 2024 from a peak of US$456/bushel in November 2023.

We expect the trend for commodity prices to continue being volatile with corn prices declining to below US$400/bushel while soybean meal prices could hover around US$330/bushel with sufficient supply in the market.

We expect LHI to be able to sustain its profit margin due to the group’s ability to pass through the cost increase to customers with an average Ebitda margin assumption of 10%-12% for the feedmill segment from 4QFY23 onwards.

In January 2024, the utilisation rate of LHI’s Malaysian feedmill plant remained stable at 65%, similar to 3QFY23. We expect the rate to be maintained at 60%-70%, given the steady local chicken consumption patterns.

We remain positive on LHI premised on: (i) expectation of the group continuing to gain market share from smaller players exiting the business due to elevated operational cost; (ii) gradual increase in revenue from an expansion in production capacity to supply more poultry to Indonesia and the Philippines; and (iii) anticipation of more stable average selling prices amid healthy demand for and supply of poultry products.

The group is investing in a slaughtering plant with a capex allocation of RM18 million in Yong Peng, Johor. The plant, with a capacity of 24,000 birds per day, is expected to be completed by 3Q25. It will be partially funded through borrowings. Meanwhile, management guided for an FY24 capex of RM200 million to RM300 million to be utilised in Malaysia, Indonesia and the Philippines for maintenance purposes.

Target price: RM1.75 HOLD

TA Securities (Feb 21): KPJ’s net profit rose 57% to RM281.3 million. A lower effective tax rate of 20.7%, strong demand and divestment of international businesses boosted its FY23 performance.

Malaysia’s health tourism revenue is expected to surpass RM2 billion in 2023 (versus RM1.3 billion in 2022). The Malaysia Healthcare Travel Council targets market growth of 18% and 20% in FY24 and FY25 respectively. For KPJ, healthcare tourism revenue stood at RM190 million (versus RM134 million in FY22), accounting for 6% of its revenue in FY23.

The group plans to raise its market share to 20% (versus 8.5% in FY23) within two to three years via: (i) 13 representative offices in Indonesia; (ii) a full-fledged health tourism team; (iii) doubling investment on promotions; and (iv) leveraging its Mayo Clinic affiliation, robotic, heart and lungs and pre-term delivery management. In addition, KPJ will focus on medical tourists from Vietnam, China and the Middle East.

We raise our FY24/25 earnings estimates to RM312.8 million/RM322.5 million from RM247.7 million/RM253.7 million after imputing FY23 numbers, revising revenue per inpatient and number of inpatients higher by 2% and 4% respectively.

Target price: RM1.45 OUTPERFORM

Kenanga Investment Bank Research (Feb 21): Uzma’s 1HFY24 results beat expectations. Its 1HFY24 core net profit surged 32% year on year (y-o-y), driven by an uptick in upstream services, while costs rose at a slower pace.

With an order book valued at RM2.4 billion, Uzma is well positioned to benefit from an increase in work orders as Petroliam Nasional Bhd intensifies upstream activities. The group aims for RM1 billion order book replenishment in FY25. Uzma’s new energy division is on track with the Large-Scale Solar 4 plant in Sungai Petani set to commence operations in 1QFY25.

After revising our gross margin assumption to 40% from 38% and anticipating an increase in work orders for upstream services, we adjusted our earnings forecasts upward by 13% and 16% for FY24 and FY25 respectively.

We like Uzma as it is a beneficiary of the current upcycle in upstream activities leading to increased oil and gas contract flows; its active thrust into sustainable businesses via its new energy segment, which enhances its environmental, social and governance appeal and helps future-proof its earnings; and the upcoming launch of its LSS4 plant that will boost recurring income.

Target price: RM24.60 BUY

MIDF Research (Feb 21): Kuala Lumpur Kepong’s (KLK) 1Q24 core profit dropped to RM331.8 million (-45.9% y-o-y) even as PBT softened to RM366.2 million, mirroring lower profit contribution from the manufacturing subsegment. The operating profit of the plantation division remained stable, attributable to the lower cost of production, while manufacturing experienced a 79.1% y-o-y decline due to weaker demand for oleo-based products.

We retain our earnings estimate as it aligns with the baseline projection, considering the underperformance of the downstream subsegment was due to a diminished demand outlook. The compressed refining and oleo margin is anticipated to persist amid competition from alternative vegetable oils in the market.

KLK’s upstream division should remain intact, although overall yields for FY23 was among the lowest in the past 10 years due to a yield dilution from the IJM Plantation Bhd acquisition in the previous year. However, it remains among the top tier if we were to compare in terms of oil extraction rate, fresh fruit bunch yield, age profile and oil yield.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.