KUALA LUMPUR: Integrated poultry farmer Lay Hong Bhd is considering making a cash call to shareholders through a rights offering or private placement of its units to reduce its current level of gearing, said group managing director Yap Hoong Chai.
As at June 30 this year, Lay Hong’s net gearing ratio stood at 1.13 times (RM162.8 million in net debt against total equity of RM144.3 million), which Yap described as “high”.
However, he noted that any corporate exercise will only be made when the group’s profit performance is stronger.
“I believe our profits will slowly improve with our major expansion in the last two years. Thereafter, maybe, we will increase our capital to help relieve the group of too much bank loans,” he told The Edge Financial Daily in an interview.
“Also, if Lay Hong becomes more profitable, shareholders will be [more] willing to put fresh capital into the group. I believe we can consider doing it (cash call) within two years,” he added.
Lay Hong returned to the black in the financial year ended March 31, 2014 (FY14), posting a net profit of RM7.16 million compared to a net loss of RM17.79 million in FY13.
The group has spent RM85.54 million in capital expenditure (capex) in the past two years, mainly to increase its farm production capacities and manufacturing of downstream poultry products, as well as expand its G*Mart supermarket outlets in Sabah.
For FY15, Lay Hong is allocating RM10 million to RM15 million for capex, which would mainly be utilised to relocate one of its farms in Ijok, Selangor.
Yap also said the group has no plans to expand its poultry-farming operations abroad for now.
“We will not expand overseas, not until we have more money or our paid-up capital is increased to some RM100 million to RM200 million,” he said, noting that this could be in another three to five years.
Its current authorised and paid-up capital stand at RM100 million and RM49.78 million respectively.
Yap also dismissed talk of a takeover by substantial shareholder QL Resources Bhd.
“We will still hold on to our company and run it. If they (QL Resources) really want our company, it has to be at a price that we can’t refuse.
“Our brand and products are strong in the market; we have our own layer and broiler farms, and own downstream products. We believe that this is still a good market for us to operate in now,” he added.
Yap has a direct 1.21% stake and an indirect stake of 43.09% via his family vehicle Innofarm Sdn Bhd in Lay Hong, while QL Resources has a 26.96% stake.
He said the two companies have “quite a close contact” as QL Resources executive director Chia Mak Hooi sits on the board of Lay Hong as non-independent non-executive director.
Lay Hong shares have risen 124.8% since QL Resources acquired its shares at RM1.05 apiece in August 2010. The stock closed up 0.85% at RM2.36 on Monday, bringing a market capitalisation of RM118.09 million.
This article first appeared in The Edge Financial Daily, on September 17, 2014.