KUALA LUMPUR (Oct 3): The High Court decision to grant a stay of the Malaysia Competition Commission's (MyCC) RM367 million fine against four feedmillers would "prevent near-term financial shocks" on the affected companies, said MBSB Research.
"The stay relieves immediate financial pressure for the feedmillers," said the research house, which has maintained its 'buy' calls on two of the affected companies: Leong Hup International Bhd (KL:LHI) and PPB Group Bhd (KL:PPB).
"As the stay prevents near-term financial shocks, we believe that the regulatory risks have been priced into valuations," MBSB Research said.
Leong Hup and PPB are among companies whose subsidiaries are potentially facing the MyCC fine, after the competition commission accused them of colluding in a “chicken feed cartel” to fix poultry feed prices between early 2020 and mid-2022.
They include:
- Leong Hup, via wholly owned subsidiary Leong Hup Feedmill Malaysia Sdn Bhd
- Malayan Flour Mills Bhd (MFM) (KL:MFLOUR), through joint venture unit Dindings Poultry Development Centre Sdn Bhd
- PPB, via 80%-owned FFM Bhd, and
- Gold Coin Feedmills (M) Sdn Bhd under Gold Coin Group.
Leong Hup and PPB could see their earnings take a hit if their feedmill units fail to overturn the fine imposed by MyCC, MBSB Research cautioned.
Under MyCC’s ruling, Leong Hup faces a RM157.5 million penalty, while FFM is liable for RM42.7 million — translating to an effective exposure of about RM34.2 million for PPB shareholders after accounting for minority interests.
MFM, whose joint venture Dindings faces a fine of RM70 million, has no analyst coverage. The group posted a net profit of RM61.16 million in the first half ended June, on revenue of RM1.6 billion.
Leong Hup would be the hardest hit, with earnings expected to fall by 27.1% in FY2025 or 25.7% in FY2026, depending on when the fine is recognised.
For PPB, the impact would be more moderate at 4.1% in FY2025 or 2.4% in FY2026, the research house said.
On Thursday, the High Court allowed the four feedmillers’ applications for a judicial review to stay MyCC’s decision. This followed the Competition Appeal Tribunal (CAT), under the Ministry of Domestic Trade and Cost of Living, dismissing the feedmillers’ bid for a stay last December.
Both Leong Hup and PPB have rejected MyCC's findings, saying the allegations against their subsidiaries were without merit.
The stay relieves immediate liquidity pressure, said MBSB Research, as MyCC had earlier demanded FFM make payment within seven days of CAT’s December ruling.
MBSB Research has unchanged target prices of 90 sen for Leong Hup and RM11.02 for PPB.
At the time of writing, Leong Hup shares were unchanged at 64.5 sen, giving it a market capitalisation of RM2.36 billion. PPB shares rose eight sen or 0.78% to RM10.28, valuing the group at RM14.62 billion. MFM shares were down half a sen or 0.84% to 59 sen, giving it a market capitalisation of RM725.01 million.