KUALA LUMPUR: Leong Hup International Bhd’s (LHIB) move to buy a company from its chairman and his family has drawn a thumb’s up from a research house on the basis that it enables LHIB to move downstream and open a new revenue stream for its poultry products.
Maybank IB Research expects there will be positive synergies for one of the largest fully integrated producers of poultry, eggs and livestock feed in Southeast Asia as the acquisition is in tandem with its intention to expand target buy The Baker’s Cottage’s (TBC) store network.
“With the consolidation of TBC, LHIB will be venturing downstream into the quick-service restaurant (QSR) business which will open up a new demand avenue for its poultry supply, increase its customer base and benefit from economies of scale.
“We understand that LHIB aims to expand its TBC store network but have not committed to a store opening target yet,” it said.
However, Maybank IB recommended ‘sell’ on its share price, which was trading down 2.5 sen at 65.5 sen with 1.43 million shares changing hands, with a price target of 56 sen.
The research house said there are several risk factors to its earnings estimates, target price and rating for LHIB.
“The group is subject to market volatility in selling prices as well as demand-supply imbalances, both in feed and poultry.
“Moreover, poultry is vulnerable to disease and epidemic outbreaks that could further exacerbate demand-supply imbalances,” it added.
Meanwhile, Malacca Securities Sdn Bhd said the purchase will allow LHIB to own the Bakers Cottage brand and integrate vertically downward to capture incremental value added from its poultry-related product sales and provide margin stability in times of live broilers supply-demand imbalance.
“We deem the acquisition to be fair at 1.2 times the net book value of the group. The purchase consideration for the proposal will be financed through internally generated funds and/or bank borrowings and the acquisition is expected to be completed in 3Q20,” it said.
LHIB has acquired the entire equity interest in TBC for RM17.9 mil. Its wholly-owned subsidiary Leong Hup (M) Sdn Bhd acquired the 43.4 million shares from Emerging Glory Sdn Bhd, which is owned by LHIB executive chairman Lau Chia Nguang, his brothers and their nephews who are also on LHIB’s board. – June 2, 2020, Bernama
