Analysts mixed on benefits of QL’s move

PETALING JAYA: Research firms are mixed on the benefits that QL Resources Bhd can accrue from its bid for Lay Hong Bhd, but all agree that the Lay Hong family are unlikely to go quietly.
CIMB Research said it was surprised by QL's move considering that both companies have failed to collaborate strategically so far.
It also expects the acquisition to have a slight impact on its earnings forecasts and the research firm raised QL's net gearing from 31.7% to 47%, which is manageable, depending on the stake that it acquires.
CIMB Research also lamented QL's limited access to Lay Hong's financial.
"Despite this, QL has been increasing its stake from just 23.6% in August 2013 to 26.8% in June 2014, which we believe was a defensive move. Without a representative in Lay Hong, QL will no longer be able to influence Lay Hong's corporate direction and this may harm its shareholders."
AllianceDBS Research also opined that the acquisition could increase QL's FY14/15 net gearing to 0.4/0.3 times.
"Based on our back of the envelope calculation (assuming 10% year-on-year earnings growth, 80% borrowings, 4.5% interest), we think the earnings impact for FY16 will be 2%," it said.
Nevertheless, AllianceDBS said QL could benefit from synergies such as new businesses, gain new markets and higher market share, improve operational efficiencies via shared expertise and facilities and better cost management for chicken feed raw materials arising from economies of scale.
"We do not think that the Lay Hong family which currently owns 44% of Lay Hong will dispose of their shareholding; hence the maximum stake that QL could get is only 56%," it added.
Public Investment Bank said it has no doubts there will be synergistic benefits should the entire company be acquired and its operations merged given the greater economies of scale, but squeezing out significant gains from an industry always susceptible to oversupply and health scare situations may prove to be challenging.
With the controlling Yap family helming management and having executed plans over the last three years with the aim of reaping rewards in the near future, Public Investment said "it may seem that they will not be going out too quietly or will they?"
On Wednesday QL, which is the second-largest shareholder in Lay Hong with a 26.81% interest, made a RM3.50 offer for the remaining shares in Lay Hong that it does not own.
In a filing with Bursa Malaysia, it said the launch of the conditional voluntary takeover was taken as a necessary step to ensure its interest in Lay Hong is protected.
Lay Hong core activities include poultry farming, poultry processing and liquid egg processing.