SELANGOR DARUL EHSANM, MALAYSIA -- LTKM Berhad, a leading chicken egg producer, today announced a composite proposal under which the company will divest its existing business and venture into electronics manufacturing services.

LTKM will acquire a 100% equity stake in Local Assembly Sdn Bhd for RM336 million, paying RM100 million (US$80 million) in cash and about 394 million new shares at an issue price of RM0.60 each.

The company pay for the acquisition in part with proceeds from the sale if its existing business to Ladang Ternakan Kelang for RM158.83 million in cash.

The application for the proposals is expected to be submitted to the relevant authorities by the second quarter and are subject to approvals from the Securities Commission, Bursa Securities Malaysia Berhad as well as shareholders of LTKM. Closing is expected to be completed in the first half of 2023.

Following the acquisition Local Assembly will become a wholly owned subsidiary of LTKM, and the vendors of Local Assembly will become LTKM’s controlling shareholders with a 56.6% equity interest in the company following the proposed acquisition and proposed restricted issue.

Under the proposed acquisition, the vendors have provided a profit guarantee for Local Assembly of a minimum profit after tax (PAT) of RM28 million for the fiscal year ending Dec. 31, 2022, or not less than an aggregate of RM50 million PAT for the 2022 and 2023 fiscal years. Based on the guaranteed PAT of RM28 million for the 2022 fiscal year, the purchase consideration represents a price to earnings multiple of 12 times.

Local Assembly, which started operations in 2000, is a manufacturer of electronic, electrical and plastic injection moulded components, and subcontract assembler of electrical appliances and equipment. Its principal markets are Malaysia and Singapore. For the latest fiscal year, Local Assembly achieved PAT of RM20.06 million on revenue of RM116.35 million.

In a statement, Datuk Tan Kok, executive chairman, LTKM, said, “At its core, the proposals seek to reward our shareholders from the proceeds of the disposal of the company’s existing poultry business while at the same time, allow them to continue participating in the new EMS business following the proposals.

“The proposed disposal comes amid the challenging operating landscape for the poultry industry brought on by overcapacity, low average selling price of eggs, high raw material prices, difficulty in controlling disease outbreaks in the farms and acute labour shortage. In relation to these challenges, we have also incurred losses in the recent financial years ended March 31, 2020 and 2021 and for the nine-month period ended Dec. 31, 2021. This has affected our ability to pay dividends too.” “Concurrent with the proposed disposals, we believe the proposed acquisition of the EMS business is an opportunity to create value for our shareholders through a business that is viable and profitable.”

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