This article first appeared in The Edge Financial Daily on April 26, 2019 - May 2, 2019
KUALA LUMPUR: Malaysia’s largest integrated poultry producer, Leong Hup International Bhd, is a step away from a return to the local stock exchange following the launch of its prospectus yesterday, with an indicative listing date of May 16.
The past seven years since it was delisted and privatised have been spent to transform the company into a key Southeast Asian player, group chief executive officer (CEO) Tan Sri Francis Lau Tuang Nguang told The Edge Financial Daily.
“All that growth you have seen — [in terms of] our footprint — has been our growth as a private company. We believe that with a bigger market capitalisation and with [a group of companies] across various markets under one roof, investors would be more interested,” said Lau, 61, who has been in the poultry business for over four decades.
He views the group’s relisting as a long-term investment, and the market’s accorded valuations of 15 times price-to-earnings to be “very fair.”
The group’s internal target is to maintain double-digit revenue growth going forward.
“We do feel that this is the right timing [to go for listing]. Food is a necessity, regardless of the market [sentiment]. From a business point of view, we are not worried,” he said.
Leong Hup International is the new name of the restructured Leong Hup Holdings Bhd, a Main Board-listed company controlled by the Lau family that was delisted in April 2012 following a privatisation exercise.
It controls two listed companies — egg producer Teo Seng Capital Bhd and Indonesian integrated poultry player PT Malindo Feedmil Tbk.
Leong Hup International’s IPO entails the issuance of up to 937.5 million shares, representing 25.68% of the enlarged issue and paid-up share capital of the company.
It comprises an offer for sale of up to 687.5 million existing shares, and a public issue of 250 million new shares at RM1.10 apiece.
Of the 937.5 million shares, up to 839.5 million shares will be offered to Malaysian and foreign institutional and selected investors including bumiputera investors, while 98 million shares are available for public subscription.
The group has secured ten cornerstone investors, including the Employees Provident Fund, AIA Bhd, foreign hedge funds Factorial Master Fund and Ovata Capital Management Ltd, agribusiness firm Louis Dreyfus Co Asia Pte Ltd, in addition to prominent investor Tan Sri Chua Ma Yu as well as Hong Leong Capital Bhd and GuoLine (Singapore) Pte Ltd.
The proceeds from the public issue amounting to RM275 million will mostly be used for capital expenditure to expand operations in the Philippines, Vietnam, and domestically.
These include the construction of 32 closed-house farms in its existing broiler farms in Malaysia, to boost production by 10.4 billion broilers per annum by 2020, as well as further expansion of the group’s existing plants and farms in Vietnam.
The largest chunk, RM120 million, will be used to further increase its presence in the Philippines which has a population of 104.9 million.
“In the immediate term, [our focus] is to grow our market shares in the fast-growing markets such as the Philippines and Vietnam,” Lau said, given the annual consumption of chicken per capita in the two countries is about a quarter of Malaysia’s 51kgs.
He pointed to the potential higher demand for chicken as a source of protein in such markets owing to the large population as well as rising affluence and health consciousness.
Given its annual capital expenditure of RM400 million to RM500 million, Leong Hup International is contemplating an expansion of its operations in other regional markets, including Cambodia and Myanmar. The group currently exports through Vietnam to Cambodia and is considering setting up a permanent genetic farm and feedmill once demand picks up. It does not discount inorganic expansions.
“We are already looking into this. If an opportunity with a right price and strategy surfaces, we would like to acquire. But of course, the acquisition has to be synergistic,” Lau said.
Leong Hup International, established in 1978, achieved a total production of 1.7 billion eggs, 495.6 million day-old-chicks, 107 broiler chickens, and nearly two million tonnes of livestock feed in 2017.
In FY17, the company registered a profit after tax (PAT) of RM247.4 million on a revenue of RM5.5 billion. Its revenue and PAT grew by a compound annual rates of 8% and 22.1%, respectively, for the financial years ended Dec 31, 2015 (FY15) to FY17.
As at 2017, Indonesia was its largest market, contributing 32% to its annual revenue, followed by Malaysia at 29%, Singapore (20%), Vietnam (19%), and the Philippines (less than 1%).