LTKM soars to all-time high after QL offers to take over Lay Hong

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KUALA LUMPUR (Sept 25): Poultry egg producer LTKM Bhd became one of the largest gainers today as it soared by as much as 34 sen or 7.3% to an all-time high of RM5. Analysts and observers attributed the rise to investors looking to play catch up with valuations set by QL Resources Bhd to take over fellow egg producer Lay Hong Bhd.

However at 3:17, LTKM pared its gains as it was traded 22 sen or 4.72% higher at RM4.88. Even at the last traded price, the company’s shares were still above the previous all-time high of RM4.71. Its trade volume was 145,100.

Fallen out of investors’ radar due to unexciting margins and oversupply, egg poultry producers seemed to find a jolt yesterday after QL launched a conditional voluntary takeover offer for the 73.12% of Lay Hong shares it does not own.

QL laid out an offer of RM3.50 per Lay Hong share, which was 1.44 times Lay Hong’s latest reported book value of RM2.43.

Analysts and observers concurred that the market’s renewed interest with LTKM could stem from the much lower valuations its shares are trading at compared with the QL’s offer price for Lay Hong.

For LTKM to be traded at the 1.44 times of its latest reported book value of RM3.83, the shares would be worth RM5.52 apiece.

“Earnings-wise, LTKM shares are trading much lower than the price-earnings ratio set for Lay Hong’s takeover price, too. Maybe this could be one of the reasons that LTKM gained so much today,” said a consumer goods’ analyst who declined to be quoted.

At the RM3.50 per share offer price, Lay Hong was valued at 24.34 times earnings per share of 14.38 sen for its financial year ended Mar 31, 2014 (FY14).

LTKM, which produces the LTK Omega 5 egg line, recorded earnings per share of 65.17 sen. Using its closing price of RM4.66, LTKM’s counter was traded at a price-earnings ratio of 7.15 times.

“However, there are different variables to value the poultry players, like, for example, the capacity of these companies,” the analyst said.