The acquisition is expected to be fully completed within six months from now.
LHI and its subsidiaries in Vietnam produce a wide range of feed products for parent stock chickens, broiler chickens, layer chickens, color birds, ducks, and quail as well as for cattle, goats, and swine.
The new asset, which currently produces only aquatic feed, has the capacity to produce up to 118,800 metric tons of aqua feed per annum. LHI said it plans to enhance the mill’s capacity and begin poultry feed production by the end of 2020.
Tan Sri Lau Tuang Nguang, CEO of LHI, said: “Vietnam is one of the Group’s burgeoning markets in Southeast Asia and we continue to sharpen our focus on expanding our growth in this region. This acquisition presents us with an opportunity to introduce feed products to capture more pockets of the region’s rising protein consumption and enables the Group to strengthen our market position in Vietnam, particularly around the southern region.”
Market analysts, AMInvest, said the deal would also result in cost savings as raw materials and finished products can be transported to the feed mill in question using the canal system.
“The acquisition is also positive as it would have taken the group at least two years to source for suitable land and construct a new feed mill. The feed mill is fully functioning and is ready for immediate production upon handover,” they commented.
AMInvest said the deal is expected to help drive the group’s feed sales volume further: “We are positive on the news as we expect the acquisition to boost LHI’s net profit for FY21F by 4–6%. We assume that the acquisition would be funded largely through cash. The fall in cash is envisaged to result in an estimated net gearing of 1.04x in FY20F."
The analysts added that LHI’s long-term outlook is positive due to the stable demand for poultry and strong earnings growth underpinned by expansions of the feed mill and livestock businesses in Malaysia, Vietnam and the Philippines.
Vietnam proves growth market for LHI
Datuk Lau Joo Hong, executive director and CEO of LHI’s Vietnam operation, said LHI has seen exponential growth from its Vietnam operations since it established a foothold in that market, back in 2007.
“Our Dong Nai feed mill, which commenced operation in January 2019, has made significant contribution as we continue to ramp up production on the back of higher demand.
“Following this acquisition and, upon installation of an additional production line for poultry feed, the Group’s combined capacity in Vietnam is expected to increase by up to 17.5% per annum. Hence, we expect to derive synergistic benefits in our feed production by way of cost and capital efficiencies.”