Lay Hong confident of profit margin's resilience

KLANG: Lay Hong Bhd, which has allocated a capital expenditure (capex) of RM50 million for the financial year ending March 31, 2018 (FY18), is confident of its profit margin not being eroded by market dynamics as the poultry group produces raw materials to be used internally.
The group sees better prospects coming up compared to last year with the increase in its broiler and egg production.
Lay Hong executive director Yap Chor How said Lay Hong’s group structure allows it to produce raw materials not be sold in the market but to be consumed internally.
“Most of our broiler chicken, we consume 100%. In fact, we see there is a shortage of chicken that we produce for our own consumption and therefore the increase in production actually is to fill our production plant’s deficit so that we can reduce our costs and increase our market supply. That’s the advantage of B2C (business-to-consumer). You have a certain price margin that is not eroded by market dynamics,” he told reporters after the group’s AGM today.
He added that for eggs, the group maintains the same kind of orderly percentage for its functional eggs (eggs laid by hens enriched with health properties) and liquid eggs.
“About 60% of the eggs consumed are either functional eggs or pasteurised liquid eggs. These are more price-stable products and the balance is exported to Singapore or through the market. Our exposure to market dynamics is limited in a way.
“How Lay Hong would grow... we see that we have a strong domestic presence and we don’t need to price our way out,” said Yap.
Meanwhile, he said the lower capex this year is because its expansion had started last year. Lay Hong has allocated a capex of RM50 million for FY18, mainly for egg and broiler expansion. It spent RM77 million last year, where the bulk of it had been used for egg production.
The group expects to produce three million eggs per day in FY18, from 2.5 million now, and anticipates to have a broiler capacity of 1.5 million birds per month for West Malaysia in FY18 and two million birds per month in FY19, from 1.1 million birds now.
Yap also clarified that Lay Hong will be one of the major participants or users of the e-grocery platform to expand its market into the business-to-business (B2B) segment, but will not be operating the e-business.
He said the e-grocery platform will be produced by enterprise solutions provider PanPages Bhd, which it had sold a 30% stake in G-Mart Borneo Retail Sdn Bhd to. However it has yet to obtain a timeline on when the e-grocery platform will be up.
“We’re highly advantage in terms of B2C where we have a huge channeling and networking to hypermarkets and modern trade but we lack the ability to go into the B2B business. This is an important step for Lay Hong to have a partner in terms of how we go into this new area of B2B and will create new potential market or future products. This is an area that we can expand further,” said Yap.
He stressed that Lay Hong is not acquiring any substantial shares either in PanPages or logistics and courier service provider company MMAG Holdings Bhd. However, the Yap family vehicle Innofarm Sdn Bhd has investments in the two companies.
“We’re more in talks in terms on how we want to increase our market share in these areas but using them as a platform rather than as an investor. Lay Hong wants to focus more on its core business ranging from poultry to food,” said Yap.
Lay Hong closed 0.51% lower today at 98.5 sen with 2.37 million shares traded.