Investment Highlights

• Leong Hup International (LHI) started off as a small family business, rearing broiler chickens in their own home in Johor. From its humble beginnings, the group evolved into a giant pure-play poultry producer comprising broiler and breeder farms, feedmill production, slaughtering plants and food processing plants. With established geographical presence in the ASEAN region, the group emerged as a top three integrated poultry producer in Malaysia, Indonesia and Vietnam and has the largest market share of slaughtered poultry in Singapore in 2017.

• Meanwhile, LHI has also established itself as one of the key livestock feed player, commanding 10.5% (Malaysia), 5.5% (Indonesia) and 4.0% (Vietnam) market share of feedmill, based on annual production of livestock feed in 2017. As of 31st October 2018, LHI has a total of 13 feedmills with an annual production capacity of 2.6 mln tonnes.

• In bid to expand its operations, the bulk of its IPO proceeds (RM207.7 mln or 75.7%) will be used to expand the production of livestock and feedmill across the existing markets (Malaysia, Indonesia, Singapore, Vietnam and Philippines).

• LHI has delivered a historical three-year (2015-2017) compounded annual growth rate (CAGR) of 32.2% on its net profit to RM191.9 mln, on the back of a historical three-year revenue CAGR of 8.0% to RM5.50 bln in 2017. At an indicative offer price of RM1.10 per share, LHI trades at an estimated 2019 and 2020 PERs of 16.8x and 14.9x, below the average PER of its local and international peers at 21.4x, indicating upside potential, in our view.

Group Background

With close to 60 years of experience in the poultry business, LHI’s roots can be traced back to the 1960s when the founding family reared broiler chickens in their own home in Johor. In 1978, LH Poultry Farm took over the family business, which eventually expanded to include broiler and breeder farms, feedmill, slaughter and food processing plants. The poultry business continued to grow and led to the listing of affiliated companies like LH Holdings (Main Board of KLSE, 1990), Emivest (Second Board of KLSE, 2002), Malindo Feedmill (Jakarta Stock Exchange, 2006) and Teo Seng (Second Board of Bursa Securities, 2008).

Emivest’s listing was subsequently transferred to the Main Board of KLSE on 14th November, 2003, while Teo Seng was transferred to the Main Board of Bursa Securities on 3rd August 2009, following the merger of the Main Board and Second Board of Bursa Securities to the new Main Market.

On 18th November 2010, both LH Holdings and Emivest received a takeover offer from Emerging Glory for a total sum of RM426.6 mln. Subsequently, both companies were delisted from the Main Market of Bursa Securities on 27th April 2012. Meanwhile, LHI was incorporated on 23th June 2014 under the name of Octagon Bliss Sdn Bhd, which was renamed Leong Hup International Sdn Bhd prior to its conversion into a public company on 17th August 2018.

LHI is the investment vehicle used by Emerging Glory to facilitate the consolidation of businesses previously held by LH Holdings and Emivest, together with other main integrated poultry operations in Indonesia through Malindo Feedmill. Later on, the entire poultry operations in the ASEAN region (i.e.: Malaysia, Indonesia, Singapore and Vietnam) were consolidated under LHI. On 9th September 2014, the group sold a 23.0% stake in LHI to Clarinden Investments, while holding the remaining 77.0% ownership.

Today, the group is one of the largest fully integrated producers of poultry, eggs and livestock feed in Southeast Asia, completely entrenched in regional markets like Malaysia, Indonesia, Singapore, Vietnam and Philippines. As of 2017, LHI is one of the largest pure-play fully integrated producers of poultry, eggs and livestock feeds in ASEAN. On the local front, the group is ranked first in terms of annual feedmill production (10.5% market share) and Day Old Chicks (27.1% market share) supplied in Malaysia.

Elsewhere, LHI is ranked first in terms of live chicken exported from Malaysia to Singapore (45.3% market share), ranked third in terms of annual feedmill production (5.5% market share) and annual Day Old Chicks supplied (7.0% market share) in Indonesia, ranked third in terms of annual feedmill production (4.0% market share) and ranked second in terms of annual Day Old Chicks supplied (12.7% market share) in Vietnam.

Source: Mplus Research - 7 May 2019