LAYHONG (9385) - Kenanga Investment- High growth ahead for Layhong new Processing Plant

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KUALA LUMPUR: Lay Hong Bhd has allocated RM39mil as capital expenditure (capex) for the financial year ending March 31, 2019 (FY19) and is to be utilised to increase broiler production.

Group Executive Director Yap Chor How said the integrated livestock farming company planned to increase broiler production capacity to two million birds monthly from the current 1.2 million.

He said the group’s focus in FY19 would include the production of liquid eggs and processed food, for which, Lay Hong has two plants scheduled for operations this year.

“We will have an upcoming liquid egg processing plant and a new further processing plant. Both will be ready by the third quarter of this year, with a monthly production capacity of 400 metric tonnes and 2,000 metric tonne respectively.

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“These two plants will keep us busy in FY19 as we work towards achieving full utilisation capacity,” he told Bernama.

He said products for the further processing plant, located in Pulau Indah, were targeted for export (70%) and local consumption (30%).

The company’s partnership with NH Foods, which specialises in processed Japanese foods, aims to penetrate into the Halal export markets and capitalise on the 2020 Tokyo Olympics.



“Under this agreement, the group provides the necessary Halal production capabilities via the construction of a new food processing plant. The plant will double the group’s processing capacity and is expected to roll out by 2H19.

Processed foods are the largest contributor to group integrated livestock farming sales at about 55 per cent in FY17,” Chua said.

Meanwhile, Yap said the group expects its chicken processing division to make a positive contribution as  demand for fresh chicken is higher during the Hari Raya season, thus, fetching a higher selling price.

For our retail division (G-mart), there will be a historically stronger performance during the Hari Raya season, as previously, this division managed to rake in a 30 per cent increase in overall sales, he added.

Kenanga Investment Bank Bhd has called a “Trading Buy” on Lay Hong Bhd with a fair value of RM1.20, citing a turnaround in egg prices and the company’s investment to improve capacity.

“Furthermore, the completion of a new processing plant would boost earnings of the joint-venture with NH Foods Ltd. We believe this would translate to core earnings growth of 85 per cent and 34 per cent for financial years 2018 and 2019 respectively,” analyst Clement Chua said in a research note today.

Kenanga anticipates Lay Hong sales growth of 21 per cent and 18 per cent in financial years 2018 and 2019 respectively, driven predominantly by better egg contributions and processed food demand.

On the implementation of the zero rating for the Goods and Services Tax (GST), Yap said there would be no impact on the egg and raw chicken divisions, as these items were already zero rated.

“Pasteurised liquid egg and further processed products such as Nutriplus Nippon Premium would be six per cent cheaper, thus, giving potential to an upside in demand,” he added. - Bernama