LayHong (9385) AGM Sept 2019

LAYHONG has been established for 59 years and is a company engaged in poultry farming. The company currently has 13 farms producing eggs, 12 farms producing chicken, 17 retail stores and 1 wholesale center.

The company's business is divided into three parts: the production of eggs, the production of chicken (Broiler) and food processing. 20% of the eggs produced by the company will be used to supply liquid eggs to local industries and exports.

The company's marketed wholesale and sale of processed food include eggs, liquid eggs and frozen chicken pieces, fried chicken and chicken sausage under the brand name of NutriPlus and WISE Choice.

From the shelves of major supermarkets and department stores, we can see the brands of NUTRIPLUS, WISE CHOICE and NIPPON NUTRIPLUS. These brands are still popular in the market. Although the demand for this business is always there, the business threat will always be affected by the bird flu virus.

In May 2016, the company opened a food manufacturing company, NHF Manufacturing (Malaysia) Sdn. Bhd, with a joint venture with NH Foods Ltd, the largest food processor in Japan (the world's fourth largest). LAYHONG holds a 49% stake.

On top of that, the joint venture business with Japanese food company - NHF Manufacturing (Malaysia) Sdn. Bhd., needs a large amount of chicken to make frozen products, and the company has invested RM 30 mil to build and expand feed mills to produce more chicken. It had begun full operation at the end of March 2019.

In the fiscal year of 2018, the company invested large amount of money to expand and increase production of eggs and chicken to meet the market demand. As such, the company has purchased equipment from Europe and China, and this equipment have the most advanced agricultural technology to reduce manpower.

The company's main farms are built in major cities in Sabah because the competition in West Malaysia is too intense whereas the competition is relatively low in East Malaysia. The gross profit margin of the company's production for eggs and frozen foods is 40% and 25%, respectively.

The growth in demand for the company's products is directly proportional to the growth of the population. Although the country's population continues to grow, its annual growth rate has fallen from 2% in 2000 to 1.29% in 2019.

Quarterly Report:
Revenue from the poultry business increased by 3.88% to 166.7m mainly due to higher egg sales. As for retail supermarkets, the lower turnover was attributed to the decline in 2 supermarkets that were poorly operated in Papar & Balung.

The decline in profit after tax was mainly due to a one-off accounting adjustment last year. This is related to MFRS141 Biological Asset.

Lay Hong's debt is still high, compared to the previous quarter, but the debt is 5.5m. This is the reason why many investors are worried about LayHong.

In order to understand how the company repaid its debts, we had attended the shareholders meeting in person and questioned on the high debt dilemma.

LayHong Shareholders Meeting Questions:

1) LayHong's debt is so high, how to repay it?
Answer: We have already sold Ijok's land before, and the 24.6m profit of land will pay off the debt. We will also get more fund through JV or selling assets.

2) NH Food business progress
Answer: LayHong has not exported any frozen food and is currently only selling to the local market. The Japanese market is approximately RM 46mil.

Although LayHong's performance in FY 2019 is not very stable and caused the share price to fall to 42.5 cents. It is mainly because previously the eggs price was low, and was dragged down by the bird flu.

Louis Yap

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