TBC contribution to LHI seen picking up from 2021

Leong Hup chicken

PETALING JAYA: The earnings contribution from The Baker’s Cottage (TBC) to Leong Hup International Bhd (LHI) is expected to pick up from financial year 2021 (FY21) onwards, on the back of a more established network of stores.

According to TA Research, the synergies of driving LHI’s sales volume through TBC could yield remarkable results.

“We find the opportunity from the venture promising. The earnings contribution from TBC in FY20 would be marginal, considering that LHI will focus on brand-building and network expansion in the near term.

“The capital expenditure per TBC outlet is estimated at RM500,000 with a payback period of about four years, ” the research house said.

LHI runs more than 50 TBC outlets and is on track to own 80 outlets by end-2020 and 300 outlets across Peninsula Malaysia by 2023.

TA Research said that the targets are not over ambitious as the expansion plans are supported by strong demands for value and affordable ready-to-eat products, vast opportunity in sub-urban townships, as well as TBC’s halal certified products that appeal to the Malaysian demographic.

In addition, there are synergies to LHI’s existing upstream business to drive volume growth and provide margin stability for the group.

Going forward, TA Research reckons that TBC could become the largest restaurant chain offering roast chicken at the best value.

“The Chicken Rice Shop (TCRS) and Ayamas are the commonly known large restaurant chains in Malaysia with roast chicken being their key specialty.

“According to their corporate website, TCRS and Ayamas have 109 and 58 outlets respectively, which indicate TBC’s number of outlets is catching up and could become the largest restaurant chain among the three by 2021.

“While each company has its own unique business concept and sales strategy, TBC is found to be offering the best product value with significantly low price.

“We believe the strengths in LHI’s existing poultry farming and processing activities has enabled TBC the flexibility to price competitively, ” said TA Research.

A promotional chicken set meal, which includes one chicken serving and a drink or side, is priced at RM6.90 at TBC, RM10.45 at TCRS and RM10.90 at Ayamas.

Meanwhile the price of a promotional whole chicken is RM10.90 at TBC, RM59.00 at TCRS and RM20.90 at Ayamas.

“We believe the worst of poultry prices has come to an end amid reopening of restaurants post movement control order (MCO).

“As such, we upgrade our target price-earnings (PE) ratio to 18 times 2021 earnings per share from the previous 14 times and arrive at a new target price of 91 sen, ” said TA Research, adding that its earnings estimates for LHI have increased by 2.2% for FY20,8.7% in FY21 and 11.4% in FY22.

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