KUALA LUMPUR (Aug 9): Leong Hup International Bhd has issued a profit guidance warning of a “significantly lower profits after taxation for the second quarter ended June 30, 2019 (2Q2019) compared with 2Q2018”.

The profit warning comes just three months after the poultry group was relisted on Bursa Malaysia Main Market.

Leong Hup, Asean’s largest fully integrated producer of poultry, eggs and livestock feed, explained that the expected lower earnings is due to a sharp decline in the average selling prices (ASP) of most of its products, particularly in Malaysia, despite higher volume sales.

This may explain the downward trend on Leong Hup’s share price shortly after it made its debut on Bursa. The stock closed at 85 sen today, down 22.7% from its IPO price of RM1.10.

“The ASP of the group’s broiler day-old-chicks (DOC) in Malaysia in 2Q2019 was RM1.21 per DOC, representing a decline of 38.6% from RM1.97 per DOC in 2Q2018,” said Leong Hup in a filing with Bursa Malaysia today.

Meanwhile, the selling price of the group’s broiler DOC in Malaysia declined to as low as 90 sen per DOC in 2Q2019, versus the lowest selling price of the group’s broiler DOC in 2Q2018 at RM1.60 per DOC, said Leong Hup.

Leong Hup highlighted that the ASP of the group’s broiler chicken in Malaysia was RM3.99 per kg in 2Q2019, representing a 14.7% decline from RM4.68 per kg in 2Q2018.

The selling price of the group’s broiler chicken in Malaysia declined to as low as RM2.60 per kg in 2Q2019, against the lowest selling price of the Group’s broiler chicken in 2Q2018 was RM3.90 per kg, said Leong Hup.

“As the group’s operating costs are relatively stable, the weaker ASP in 2Q2019 will affect the group’s margins and profitability,” said Leong.

As at Aug 5, the market prices of broiler DOC and broiler chicken were RM2 per DOC and RM5 per kg respectively.

The total sales volume of livestock feed, broiler DOC, broiler chicken and eggs, however, increased in 2Q2019 by 13.9%, 8.1%, 10.7% and 5.9% to 583,665 tonnes, 123 million broiler DOCs, 31 million broiler chickens and 430 million eggs respectively, versus 2Q2018, said Leong Hup.

“Our sales volume is still growing well despite the lower ASP in 2Q2019,” said group its chief executive officer Tan Sri Lau Tuang Nguang, who is also the executive director.

“Given that the group’s operating costs are relatively stable, the weaker ASP in 2Q2019 will affect the group’s margins and profitability,” said Lau.

“We expect our sales volume growth to continue across our key product categories and in most of the markets that we sell to,” said Lau, adding that the Leong Hup will continue to execute its plans and strategies in all five markets it operates in.

“We believe that the strength of our geographical diversification as a fully integrated producer of poultry, eggs and livestock feed, together with strict cost control policy will position us well for long-term growth,” Lau added.