Institutional investors, hungry for a large initial public offering (IPO) after a drought in 2018, are flocking to Leong Hup International Bhd, as the company launched one of the most exciting new listings on Bursa Malaysia in recent years.
Bankers advising the deal said Leong Hup’s institutional offerings – a total of 839.5 million shares – have received overwhelming demand.
Ten cornerstone investors have committed to take up almost half of the amount on offer, while the rest – reserved for investors approved by the International Trade and Industry Ministry (Miti) – has been allotted.
The remaining 98 million shares, set aside for the Malaysian public at a maximum price of RM1.10 each, will be closed on May 3.
“We are extremely happy to receive such overwhelming demand from institutional investors,” Leong Hup executive director and group CEO Tan Sri Francis Lau said.
“We would like to get a higher price (for the IPO), but we think this is a fair price and we believe our investors can make money too,” he said after launching the group’s prospectus on Thursday.
The IPO got off the roaring start after Louis Dreyfus Company (LDC), one of the world’s biggest agriculture processor, said on Thursday that it is investing in Leong Hup.
“LDC cornerstone investment in Leong Hup’s IPO is in line with LDC’s strategy to diversify further downstream and strengthen our footprint in growth markets by partnering with key players in the feed, food and nutrition value chain,” its group CEO Ian McIntosh said.
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Ten cornerstone investors have committed to take up almost half of the amount on offer, while the rest – reserved for investors approved by the International Trade and Industry Ministry (Miti) – has been allotted.
The remaining 98 million shares, set aside for the Malaysian public at a maximum price of RM1.10 each, will be closed on May 3.
“We are extremely happy to receive such overwhelming demand from institutional investors,” Leong Hup executive director and group CEO Tan Sri Francis Lau said.
“We would like to get a higher price (for the IPO), but we think this is a fair price and we believe our investors can make money too,” he said after launching the group’s prospectus on Thursday.
The IPO got off the roaring start after Louis Dreyfus Company (LDC), one of the world’s biggest agriculture processor, said on Thursday that it is investing in Leong Hup.
“LDC cornerstone investment in Leong Hup’s IPO is in line with LDC’s strategy to diversify further downstream and strengthen our footprint in growth markets by partnering with key players in the feed, food and nutrition value chain,” its group CEO Ian McIntosh said.
For its IPO, Leong Hup is offering to investors 937.5 million shares – comprising an offer for sale of 687.5 million shares and issuance of 250 million new shares – at RM1.10 each.
This means the base size of the offering is RM1.03bil, but the amount can increase up to RM1.2bil if an over-allotment option is exercised.
At its IPO price, the company is valued at RM4bil, or about 20 times its historical earnings in financial year ended Dec 31, 2017 (FY17).
It is not cheap, but the Leong Hup in its 500-page prospectus offers an insight into its strategy and indications that earnings are set to improve in 2018.
The poultry producer, which derives 70% of its revenue from overseas, reported a net profit of RM247mil on revenue of RM5.5bil in FY17.
For the first ten months of 2018, net profit has reached RM219.8mil, or 10.5% higher compared with RM198.9mil made in the same corresponding period in 2017.
Revenue improved 2.2% to RM4.69bil in the first ten month of last year.
The company has also said the it will return 30% of its annual profit as dividends to shareholders after it goes public.
Leong Hup is expected to release its FY18 results before the stock is listed on Bursa Malaysia – tentatively set for May 16.
“The demand from institutional investors (for Leong Hup’s IPO) is the best we have seen since 2013,” Maybank Kim Eng Group chief executive officer Ami Moris said at the event on Thursday.
Leong Hup submitted its draft prospectus to the Securities Commission in October last year, with a plan to sell as much as 1.6 billion shares.
Reports at that time suggested that the company is looking to raise as much as RM2.4bil.
But poor market sentiment, the FBM KLCI is down 3.2% for the year as of Friday, has forced the company to halve its expectation.
The scaled down RM1.2bil IPO is the largest since Lotte Chemical Titan Holdings Bhd raised RM3.77bil in July 2017.
Last year, Bursa Malaysia attracted 22 new listings, made up mostly of smaller companies that raised a total of RM633mil – the lowest in more than a decade.
The IPO drought last year contributed to the pent-up investors’ appetite for big offerings.
“The institutional offerings are fully allocated,” Maybank Investment Bank Bhd managing director and regional head of equity capital markets Ramesh Manimekalanandan said.
Maybank IB is lead adviser for Leong Hup’s IPO.
Leong Hup is the largest integrated poultry producer in Malaysia and one of the top three companies in Indonesia and Vietnam.
In 2017, the company produced 495.6 million day-old-chicks, 107 million broiler chicken, 1.7 billion eggs and two million tonnes of animal feed across five countries.
The company will raise RM275mil from the IPO, of which 75.5% or RM207.7mil is set aside for capital expenditure and another RM32.96mil as working capital.
The remaining RM34.3mil is to defray fees and other IPO expenses.
Leong Hup started business in 1978 and became the first poultry company in 1990 to be listed on Bursa Malaysia.
In 2012, the founding Lau family took Leong Hup and its Emivest Bhd private, before selling a 23% stake in the combined entity to private equity firm Affinity Equity Partners in 2014.
Post IPO, the founding family’s shareholding in the company will be reduced to 64% or lower, while Affinity’s stake will come down to less than 10%.
Public investors will own at least 25.68% of the company post listing. The public shareholding spread could increase to as much as 29.54% depending on the amount shares to be released under the over-allotment option.
Leong Hup has poultry-related businesses in five countries – Malaysia, Singapore Indonesia, Vietnam and Philippines.
The group owns majority stakes in egg producer Teo Seng Capital Bhd and in PT Malindo Feedmill Tbk, which is listed on the Indonesia Stock Exchange.
The company’s operations in Malaysia generated about 30% of its annual revenue, with the rest coming from overseas.
“Many asked me why list in Malaysia when most of our revenue is coming from outside of Malaysia,” Lau said.
“To this, I said we are a Malaysian company that is proud to have our roots here and so will naturally choose Bursa Malaysia as our listing ground,” he said.
Meanwhile, all eyes will be Leong Hup’s return to the stock market on May 16.
After a string of mega flops that has befoul the Malaysian IPO market in recent years, investors on Bursa Malaysia is hoping that the “chicken king” will produce a winner.
http://www.thestar.com.my/business/business-news/2019/04/27/hungry-investors-flock-to-leong-hup-ipo/
