| QL Resources lays hands on rival |  |  |  |
| Written by Koo Jie Ni & Chong Jin Hun |
| Tuesday, 24 August 2010 12:17 |
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| QL Resources Bhd yesterday acquired 11 million shares or 23.29% of Lay Hong Bhd in an off-market transaction. The identity of the seller was not disclosed but it is believed to be London Biscuits Bhd. All three players are in the food business. The common denominator in the three companies is the need for eggs, which is what Lay Hong offers. Founded in the 1970s and listed since October 1994, Lay Hong is mainly involved in the production of eggs, broiler farming and feedmill activities. It has also ventured into the retail business in Sabah and currently operates eight supermarkets under the trade name G*MART. QL Resources is principally involved in marine products manufacturing, livestock farming and oil palm cultivation. It is the country’s largest fishmeal manufacturer and the largest producer of surimi in Asia. It is a leading egg producer in the country with a daily production of 2.5 million eggs. London Biscuits, on the other hand, is a home-grown manufacturer of cakes and snack foods. According to QL Resources’ announcement to the stock exchange yesterday, it acquired the shares at RM1.05 apiece for a total of RM11.55 million. This values Lay Hong at RM48.55 million, and at a price-to-book value of just 0.52 times based on its latest net assets per share of RM2. Lay Hong’s shares have been rising steadily for the past year. They hit a 52-week low of 60 sen on Sept 18, 2009, and then climbed 117% to reach RM1.30 on July 27, 2010. Both Lay Hong’s and QL Resources’ shares gained four sen yesterday to close at RM1.19 and RM4.59, respectively. A source familiar with the matter said it was Lay Hong’s layer operations, feedmill activities, broiler contract farming and good brand name that sparked QL Resources’ interest. “Additionally, Lay Hong’s corporate results are good, and have grown over the years. Furthermore, QL Resources and Lay Hong are in similar businesses, hence the two companies may be able to achieve synergies from sourcing arrangements, marketing networks and operations,” he said. The source declined to say if QL Resources would increase its stake in Lay Hong or seek board representation.  One of Lay Hong's egg-producing farm in Selangor For its fourth quarter ended March 31, 2010 (4QFY10), Lay Hong reported a net profit of RM1 million on the back of a RM95.06 million revenue. The net profit was 81% lower than that of a year earlier. The company said this was mainly due to lower selling prices of poultry products as well as additional provisions for doubtful debts and inventories. Notwithstanding the weaker fourth quarter, it is worth noting that Lay Hong’s full-year FY10 results showed a net profit of RM10.33 million, on revenue of RM388.75 million, a 46% climb from its net profit of RM7.09 million for FY09. While Lay Hong is off investors’ radar screens, QL Resources is a firm favourite among fund managers. The company recently announced a net profit of RM26.8 million, or 6.86 sen per share, for its first quarter ended June 30, 2010 (1QFY11). In July 2010, QL Resources was recognised by The Edge as one of the Top 10 Companies of the Year in The Edge Billion Ringgit Club, in recognition of its profit performance, shareholder value creation and corporate social responsibility. London Biscuits: Sale at a loss of two sen per share While the seller of the stake in Lay Hong has yet to be announced, it is believed to be London Biscuits, which had purchased a substantial interest in Lay Hong in November 2006. Based on Bursa Malaysia announcements, London Biscuits acquired a 20% stake or 9.24 million shares in Lay Hong, representing the bulk of its holding, in two tranches priced at RM1.01 and RM1.14 per share. At a weighted average price of RM1.07, this represents two sen more than the resale value to QL Resources, or an average loss of RM184,800 for the 20% stake. An additional 2.13 million shares were acquired in the open market thereafter. It is estimated that the trades were made at prices ranging from 89.5 sen to RM1.15 per share. Before the divestment, London Biscuits sold 100,000 shares of Lay Hong last month. According to calculations by The Edge Financial Daily, the company now holds 170,000 shares or a small 0.37% stake in Lay Hong, after the sale of its 11 million shares yesterday. According to a source, London Biscuits disposed of its investment in Lay Hong because it felt the business overlapped with its investment in poultry farmer and feed manufacturer TPC Plus Bhd. London Biscuits emerged as a substantial shareholder in TPC in March this year after acquiring a 32% stake or 25.6 million shares for RM7.7 million. A month later, London Biscuits made a voluntary takeover offer for the remaining 54.4 million shares in TPC at 30 sen each or a total of RM16.32 million. It was conditional upon London Biscuits obtaining more than 50% of TPC. The takeover lapsed in June as it failed to secure over 50% of TPC’s shares. Its total interest stood at 46.99% at the close of the offer period. In its quarterly results for the three months ended March 31, London Biscuits registered a net profit of RM4.03 million on the back of revenue of RM50.92 million. Revenue grew by 7% while net profit fell by 12% from the previous corresponding period. The movement was mostly due to the income tax of RM544,000 charged to the company in 3QFY10, whereas in 3QFY09, it reported a tax refund of RM683,000. The company did not offer any explanation for the year-on-year change in performance. London Biscuits closed at RM1.16 yesterday, down four sen. This article appeared in The Edge Financial Daily, August 24 2010. |
