That is true. It's all about the market's expectation and how much has already been priced-in into the share price. My view is: risk-reward is favorable.

Posted by Ricky Yeo > Sep 5, 2018 07:24 AM | Report Abuse

My layman understanding is this entire thesis rest on the growth of LH's frozen food segment, which according to part 3, the underlying factor is margin expansion, which lies in the heart of pricing power in the name of brand. The end of the capex cycle assume the brand has been established, groundwork has been laid and there is no more outlay required to build to brand. So the future value comes from the moat of brand to protect Nutriplus from being outcompete by competitors.That is a big assumption. The assumption that brand has been build; the assumption that there is pricing power; the assumption that there is a product differentiation/brand loyalty needs to be investigated further.

Hi WealthWizard. Love your work too! I've dropped you an email :)

Posted by WealthWizard > Sep 4, 2018 04:44 PM | Report Abuse

@Chicken King, your works are brilliant & adorable, can we communicate through emails? Thank you.

Email: wealthwizard.invest@gmail.com

https://klse.i3investor.com/blogs/ckinginvest/172826.jsp

It is actually based on a few assumptions and from whatever information on segmental margins I could dig up from analyst reports.

This initiation report here from UOB has plenty of info:
https://research.uobkayhian.com/content_download.jsp?id=44935&h=5de467a7575b9538de41b90d8df790b7

The concept is simple - Lay Hong has 3 main segments: Eggs (24% revenue), Processed food (50% revenue), and Others (26% revenue). The "Others" segment generally contributes minimally to earnings, while processed food has stable margins from their pricing power. Therefore, the main swing factors are only "Egg" segment profits and feed cost movements.

Using the above information plus egg & feed price trends, I observe q-o-q fluctuations and estimate what were their impact to earnings after considering capacity expansions as well. There's a lot of calculation.

But after stripping out the volatile portion, the remaining "stable" portion is always roughly RM7-8 million per quarter.

I admit it might not be 100% accurate, in fact it might be far from actual contribution. So it's still an estimation. But the idea makes sense: There are only 2 segments contributing to profit. The segment with higher margins should contribute more to bottomline.

Thanks for asking. I wasn't sure I should include this explanation in the article because it might become too long-winded.

Posted by valuelurker > Sep 2, 2018 11:56 PM | Report Abuse

How do you derive the RM7-8mil for the frozen processed foods segment based on 'sensitivity analysis' in part 1 and 2

It's billion and I've made the correction. Thanks for pointing out!

Posted by Flintstones > Sep 2, 2018 07:08 PM | Report Abuse

11 trillion sales? Are you sure?

https://klse.i3investor.com/blogs/ckinginvest/172225.jsp

A laying hen will continue to lay 5-7 eggs per week regardless of season. To reduce production would mean culling the hen. Most of the time, it is not worth culling them unless the egg prices fall too low for long periods of time. But once industry-wide volume is reduced, big players will benefit from the price rebound while small players need 6-8 weeks to re-grow new hens to catch up. Industrialized layer farms generally have stronger financials compared to mini farmers to sit through the low cycle.

Posted by smalltimer > Sep 1, 2018 08:42 AM | Report Abuse

What about more cookies & cakes being baked? Since been in egg business for many years & if trend in ramadan is always throw price, why not reduce production hence reduce cost...sell as meat during ramadan la

If you observe the egg price trend for the past few years, they have always came down during the Ramadan month. Reason is simple: less meals per day equals less demand for eggs. Eggs spoil in 2-3 weeks. So egg farmers will be scrambling to clear their stock. The oversupply will the cause egg prices to collapse.

Posted by smalltimer > Sep 1, 2018 08:28 AM | Report Abuse

My question is last quarter shld be high egg consume since more cakes & cookies being baked...& Since the price of chicken food increase..what'rationale to drop the egg price? Egg control price is 2-4 weeks during puasa...is this the caused? Then govt the culprit?

https://klse.i3investor.com/blogs/ckinginvest/172147.jsp

https://klse.i3investor.com/blogs/ckinginvest/172144.jsp