PETALING JAYA: The largest initial public offering (IPO) in a couple of years is counting on its fundamentals and long-term business trajectory to counter the gyrations of the capital markets ahead of its listing tomorrow.
Leong Hup International Bhd, which aims to list at RM1.10 a share in an IPO valued at RM1.2bil, will be the largest IPO since Lotte Chemical Titan Holding Bhd. However, it is facing markets roiled by a ratcheting of trade war barbs between the United States and China.
Despite the weakness in the market and dampening sentiment, Leong Hup executive director and group chief executive officer Tan Sri Lau Tuang Nguang is confident that the company’s listing on Bursa Malaysia would be well received by the market, due to its business in the consumer staple sector.
Traditionally, consumer staple companies are able to maintain relative stable earnings and ride through different conditions of the economy.
“We expect our shares to be well received by the market as we are in the business of basic food production. Regardless of market volatility, people must eat,” Lau told StarBiz.
He reckoned that the current market conditions are a short-term issue and that Leong Hup’s growth is driven by the Asean market.
“As long as the population in Asean is still growing and the economy is improving, Leong Hup’s market will continue to increase in size.
“We don’t worry about short-term volatility and just focus on our business to supply quality products at reasonable prices” Lau said.
On Monday, global stock markets, including all three major US stock indexes, plunged after China announced retaliatory tariffs on US products.
China said it would raise tariffs on US$60bil worth of US goods from June 1. This comes after the US hiked tariffs from 10% to 25% on US$200bil worth of Chinese exports last Friday.
Yesterday, the FBM KLCI, which is made up of Bursa Malaysia’s 30 largest stocks by market capitalisation, closed below 1,600 points for the first time since September 2015.
But Lau expects the trade tension between China and the US to not have an impact on Leong Hup. “In the long term, Asean economies may benefit if companies move out from China to relocate to Asean countries,” he said.
Leong Hup is one of the largest integrated poultry, egg and livestock feed producers in South-East Asia, with businesses in five countries in the region.
It is one of the major suppliers of broiler chicken in Malaysia with an estimated 10% market share.
The company’s listing is one of the most anticipated IPOs of the year, due to the dearth of such big IPOs in the past two years.
Its debut tomorrow would make Leong Hup the biggest IPO on the Main Market of Bursa Malaysia this year.
From its IPO of RM1.2bil, the total amount to be raised for the company is RM275mil. About RM207.7mil, or 75%, will be set aside for business expansion.
For its first-quarter earnings to end March, Leong Hup’s net profit rose 15% to RM60.58mil compared with RM52.68mil achieved a year ago, on higher sales volume and an increase in the selling price of eggs in Malaysia and broiler chicks in Indonesia.
Revenue rose around 11.2% to RM1.51bil from RM1.35bil previously.
TA Securities has a target price of RM1.43 on the stock while Interpac Securities and JF Apex Securities both target RM1.27 and RM1.43, respectively.