TA Securities initiates coverage on Leong Hup with ‘buy’ call

Thestar.com.my :TA Research has initiated coverage on Leong Hup International Bhd with a “buy” call ahead of the poultry player’s listing this month.

The research house has also set a target price of RM1.43 per share, which represents an upside potential of 30% from the group’s initial public offering (IPO) price of RM1.10 per share.

Leong Hup will be returning to the stock market on May 16 as among the biggest listings on Bursa Malaysia of late, with application for the public portion of its IPO shares closing at 5pm on May 3, 2019.

“We reckon our valuation is fair, given that it is within the range of ascribed valuations to its most comparable peers,” said TA Research, which is among the first to initiate coverage on the group.

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The research house, in a note yesterday, said it likes Leong Hup for its position as a fully integrated “pure play” poultry player, its dominant presence and position in Asean, the tailwinds it enjoys from favourable raw materials and and its high-quality associated branding with strong track records.

“We are also positive on Leong Hup’s plan on expanding into new markets such as the Philippines, and optimising its value chain through further vertical integrations,” it said.

The research house forecasts that the group will record an earnings growth of 17.4%, 8.7%, and 12.1% year-on-year to RM252.5mil, RM274.5mil and RM307.7mil for financial year 2019 (FY19), FY20 and FY21 – which represents a three-year compounded annual growth rate of 12.7%.

The growth, it said, would be supported by a higher production volume from existing markets and aggressive development in its new market – the Philippines.

Leong Hup will be returning to the stock market on May 16 as among the biggest listings on Bursa Malaysia of late, with application for the IPO shares closing at 5pm on May 3, 2019.

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The group, which derives 70% of its revenue from overseas, is targeting to raise up to RM1.2bil from its IPO that includes an offer for sale of shares held by existing shareholders and the issuance of new stocks.

The IPO involves the offer for sale of 937.5 million shares or 25.68% of the company, excluding an over-allotment option that could increase the public shareholding spread to 29.54%.

It comprises an offer for sale of 687.5 million shares held by existing shareholders – the Lau family and private equity firm Affinity Equity Partners – and the issuance of 250 million new shares at RM1.10 each.

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