KUALA LUMPUR, March 9 (Bernama) -- MBSB Investment Bank Bhd (MBSB IB) has maintained its 2026 earnings forecasts for Leong Hup International Bhd (LHI), noting that any potential penalty arising from ongoing legal proceedings would likely be treated as an exceptional or non-core item.
In a research note today, MBSB IB said that it is keeping the projections unchanged despite the latest court developments involving LHI’s unit, Leong Hup Feedmill Sdn Bhd (LFM).
It said the worst-case penalty for LFM could amount to RM157.5 million and has outlined several possible scenarios depending on the court’s decision.
Previously, LHI had appealed the Malaysia Competition Commission’s (MyCC) decision to fine LFM for allegedly being part of a poultry feed price-fixing cartel, filing a notice of appeal with the Competition Appeal Tribunal (CAT) and applying for a stay of MyCC’s decision.
On Dec 22, 2023, MyCC imposed penalties totalling nearly RM415.5 million on five poultry feed manufacturers, including LFM, for infringing Section 4 of the Competition Act 2010 by forming a price-fixing cartel for poultry feed between January 2020 and June 2022.
MBSB IB said that under its base-case assumption, the High Court has granted leave and issued an ad interim stay; while the focus now shifts to whether the court grants an interim stay and the subsequent judicial review (JR) timetable.
“We assume enforcement remains paused in the near term, with timing (rather than quantum) as the key swing factor for any exceptional charge or cash outflow,” it said.
In a bear-case scenario, it said the interim stay could be denied or lifted quickly, allowing enforcement and recovery actions to proceed and potentially leading to earlier payment and recognition of the penalty.
It said that in a bull-case scenario, the court may grant an interim stay pending full disposal of the JR, effectively prolonging the enforcement pause and deferring any cash outflow.
MBSB IB said the worst-case penalty, if recognised, could reduce LHI’s core profit after tax and non-controlling interest by about 28.5 per cent in 2026 and 26.7 per cent in 2027.
It said the next key catalyst will be the court’s case management date, which will determine filing directions and fix the hearing date for the interim stay application.
The investment bank said the High Court (Kuala Lumpur) had on March 5 granted LFM leave to commence a JR against the CAT’s decision.
“CAT had dismissed the appeals by LFM, upholding MyCC decision, penalties and directions; LFM indicated intent to pursue further legal steps (likely JR), as well as seeking a stay,” it said.
The court also granted an ad interim stay on both the CAT and MyCC’s decisions, effectively pausing enforcement, execution and recovery proceedings until the company’s interim stay application is determined.
MBSB IB said that there is no change to the company’s core earnings outlook at this stage, as the CAT’s dismissal of LFM’s appeal does not alter the fine quantum.
“Next steps, including possible further legal challenges or a stay, mainly affect timing and should be treated as an exceptional item,” it said.
Despite the legal uncertainty, MBSB IB maintained a “buy” call on LHI with an unchanged target price of RM1.10.
-- BERNAMA
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