This article first appeared in The Edge Financial Daily on October 21, 2019

KUALA LUMPUR: After LTKM Bhd’s privatisation proposal fell through recently, the question that arises is whether the egg producer will make a fresh attempt to buyout its remaining minority shareholders. Executive chairman Datuk Tan Kok says that while privatising the company is his ultimate goal, the plan has been put on the back burner for now.

“I will continue to monitor the market situation before taking any action,” Tan told The Edge Financial Daily, pointing out that a privatisation exercise costs millions of ringgit.

The recent privatisation bid failed after the total acceptances received for the offer made by Tan and his family was only 88.43%, which is 1.57% short of the 90% level required.

The failure came as a surprise to Tan, who had expected the minority shareholders to cash out their investments amid the overall weak market sentiment.

“Trading interest in LTKM has always been quite low. Poultry stocks are not as exciting as [for example] tech counters. Our counter is not attractive enough for major institutional shareholders, despite the fact that our price-earnings ratio remains at a single-digit low level,” he said.

When the proposed privatisation was announced on July 22, Tan and his family owned 68.26% of the company, they offered to buy the remaining 31.74% stake at RM1.35 a share.

Besides Tan, the joint offerors included his wife Datin Lim Hooi Tin and daughter-in-law Tan Chee Huey, Tan Yee Boon, Tan Yee Siong and YBJ Capital Sdn Bhd.

Mercury Securities Sdn Bhd had said in an independent advice circular that the offer was deemed “not fair”, as the offer price of RM1.35 is at a discount of between RM1.09 (44.67%) and RM1.20 (47.06%) over the range of estimated value per LTKM share derived using the sum-of-parts valuation model of RM2.44 to RM2.55.

However, the independent adviser also noted that the offer price presents a premium of 24 sen or 21.62% over the last traded market price of the stock on July 18, and a premium of between 12.16% and 30.74% over the five-day, one-month, three-month, six-month and one-year volume weighted average prices of LTKM shares up to the last trading date of the offer notice.

Additionally, Mercury Securities noted that LTKM shares are illiquid with a simple average monthly trading volume-to-free float of 2.23%, for the 12 months up to July.

Thus, the firm said the offer price is “reasonable” as it provides an exit opportunity to shareholders, especially those holding a significant number of LTKM shares to realise their investment in cash.

Tan said a main reason why he and his family sought to privatise the company was that they were “fed up” with regulations imposed on them by regulators.

“Being a public listed company, there are a lot of requirements and regulations that we are required to comply. We feel that whenever we want to do something, we are constrained by all these regulations.

“We feel that we are putting a lot of effort and time trying to comply with the Securities Commission’s rules, and not so much on growing the business, which I think this has also prompted many other companies to opt for privatisation in Malaysia recently,” he added.

Another reason, said Tan, was that LTKM adopted a conservative approach and was not seeking to raise funds from the public. As such, privatisation is an ideal option for the company.

Group to focus on property development

Going forward, Tan said LTKM will remain as an egg producer but will focus more on the property development business.

“We are planning to buy more land and will keep it as land banks for property development business in the future,” he said, noting that it is currently a buyer’s market given the current subdued property market where there are many property owners looking to sell their land.

The company’s remaining undeveloped land bank stands at 34 acres (13.76ha). Of this, 25 acres are located in Jenjarum, Kuala Langat, three acres in Jalan Puchong and six acres in Balakong.

“The Jenjarum land is intended for landed property development, for which we have already submitted a building plan. We are expecting to receive approval by the first half of next year, with first phase’s estimated gross development value estimated at about RM25 million.

“While for lands in Jalan Puchong and Balakong, we are planning for service apartment developments and we are waiting for the approval for plot ratio,” Tan said.

In view of the current weak property market, the company is not in a rush to launch new projects in the near term, he added.

On LTKM’s poultry business, Tan expects the business to remain profitable this year with stable egg prices. The company produces more than one million eggs per day from its farm in Melaka.

However, he added that the company has adopted a cautious stance on farm operations due to business risks.

The risks are that the poultry industry has been volatile with no predictable direction in the future, and given its high dependency on foreign workers, any changes in government policy will put the company at risk of not getting enough manpower, he said.

LTKM’s posted a net profit of RM510,000 for the first quarter ended June 30, 2019, compared to a net loss of RM1.88 million a year ago, mainly due to improved egg prices, but offset by impairment recorded in the sand-mining and property development segments.

Its quarterly revenue rose 22.38% to RM48.25 million from RM39.42 million a year ago. LTKM shares were last traded at RM1.25, bringing it a market capitalisation of RM162.63 million.