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KUALA LUMPUR: Poultry farmer Lay Hong Bhd expects to perform better in the current financial year ending March 31, 2016 (FY16) compared to  FY15 due to low feed prices and a favourable foreign exchange, but growth is likely to slow after a record year.

“The current financial year will definitely be better than FY15,” its group managing director Yap Hoong Chai said after the group’s annual general meeting yesterday. However, he said, net profit growth would be under 10% in FY16, driven by its chicken and egg business segments.

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For the first financial quarter ended June 30, 2015 (1QFY16), Lay Hong saw its net profit jump 66% to RM2.58 million, despite a 1.04% fall in revenue to RM154.55 million. Yap said the group’s export segment is benefiting from a weaker ringgit, as it gains from foreign currency translation. 

Lay Hong currently exports its eggs to Singapore and Hong Kong, which combined account for about 20% to 30% of the group’s revenue from the egg business segment. 

“Judging from the current situation and the current currency exchange rates that we are working on, we expect the operating environment to remain favourable for Lay Hong in the next three to six months,” Yap said, adding that the local poultry industry continues to operate in good conditions even after the implementation of the goods and services tax (GST).

On dividend payments, Yap said Lay Hong is unlikely to declare any payouts until its gearing ratio falls below one time. “According to our internal analysis, it will be more feasible for us to pay dividends if our gearing is below one time,” Yap said, adding that the group plans to achieve this target by embarking on more corporate exercises to raise funds. 

As at end of March 31, Lay Hong’s gearing ratio stood at 1.04 times compared with 1.32 times a year ago. Its cash and bank balances stood at RM4.14 million, while loans and borrowings amounted to RM145.81 million.

Meanwhile, Yap noted that investors were reluctant to subscribe to shares in the company on share liquidity concerns and a general offer made by rival QL Resources Bhd last year.

With all the concerns cleared, he believes that the group would be able to attract institutional investors to subscribe to shares in the company. 

“We have been approaching some fund managers and banking firms, but nothing has been concluded thus far,” he added. 

As at Aug 24, 2015, Lay Hong’s number of public shareholders stood at 658 with a public shareholding of 16%. This represents a 9% shortfall compared with Bursa Malaysia’s requirement of 25%. 

Yap also said the group has set aside some RM30 million as capital expenditure for FY16 to grow and expand its egg and downstream businesses. 

Lay Hong is aiming to increase its egg production by 30% within three years and boost its export market to sustain growth. “We will be focusing on our own brand products, which are less price sensitive and fetch better margins,” said Yap. 

Shares in Lay Hong fell 19 sen or 4.87% to close at RM3.71 yesterday, giving it a market capitalisation of RM187.21 million.

 

This article first appeared in digitaledge Daily, on September 15, 2015.

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