News

QL announced that it had disposed its entire 38.6% stake or 19.9m shares in Lay Hong Berhad (LHB) on 11 September 2015 via Direct Business Transaction at the price of RM3.05/share or a total value of RM60.7m.

The disposal gain derived amounted to RM18.9m, translating into investment gain of 45.2% over a time period of more than 5 years. Recall that QL first emerged as a substantial shareholder in LHB back in Aug 2010 when it acquired a 23.3% stake at the price of RM1.05/share.

Comments

For indication purpose, the disposal price of RM3.05/share represents a discount of 15.3% from the 5-day VWAP (volume weighted average price) of RM3.60/share, at a 21.8% discount from last closing price of RM3.90/share and 12.9% discount from the GO price of RM3.50/share (back in Sept 2014). It also translates into FY15 PER of 8.6x and PBV of 1.15x.

The gain on disposal to be booked in would be RM377k as the remaining gains have been recognised earlier in FY12 (RM10.2m) and FY15 (RM8.3m). No earnings impact to QL as it has reclassified LHB to Available for Sale (AFS) from associate in 4Q15. However, we understand that QL will remain as a business partner to LHB, which involves a business volume of c.RM50m.

Outlook

Earnings growth is expected to be healthy at 7.8%and 11.5% over the next 2 years, underpinned by the defensive nature of its products, which are in the consumer staple food market that are less vulnerable to the weak consumer sentiment.

Forecast

No changes to earnings forecast.

Rating

Maintain MARKET PERFORM

Valuation

Maintain our Target Price of RM4.16, based on unchanged 23x PER FY17E.

Risks to Our Call

Higher-than-expected egg prices

Lower-than-expected production costs

Source: Kenanga Research - 14 Sep 2015