Leong Hup shares remain unchanged despite price-fixing allegations
KUALA LUMPUR: Investors holding shares in Leong Hup International Bhd held firm on Monday despite allegations that the group’s feed business participated in anti-competitive price-fixing practices with industry peers by raising the price of poultry feed between early 2020 and mid-2022.
As of 10:15 a.m. Monday, the poultry group’s shares were unchanged at 52 sen per share on the back of 364,400 shares traded, suggesting investors may be taking a wait-and-see approach on ongoing developments.
It was announced in Bursa Malaysia last Friday that the unit in question, Leong Hup Feedmill Malaysia Bhd, and four other millers have been provisionally found to have breached Section 4 of the Competition Act 2010 (Law 712).
Section 4(1) of the Act prohibits companies from entering into a horizontal or vertical agreement if it substantially lessens, prevents or distorts competition in any market for goods or services.
Leong Hup said in Bursa Malaysia’s filing that he firmly believes the allegation is baseless and intends to vigorously defend it.
“The Company and LFM will review the matter with outside counsel and submit written representations within the specified time and make an oral representation before MyCC,” it said.
According to MIDF Research, the group says the increases in mill costs are mainly due to Malaysian mills importing the same raw materials from overseas.
“This is due to the oligopolistic structure of the feed mill, where firms produce homogeneous products at a fixed marginal cost.
“The millers compete with each other by setting prices such that when one rises the others follow. Therefore, the group points out that just because all are rising at about the same time does not mean that there is price fixing. prices,” the research house said.
She added that in the worst case, the financial penalty would not exceed 10% of the turnover of the group’s food factory for the period concerned.
“We expect a worst-case financial penalty of between RM74.4 and 744.4 million, based on a financial penalty of between 1% and 10% of the feed mill’s revenue. LHIB from early 2020 to mid-2022.
“Note that LHIB only operates one feed mill in Malaysia. The financial penalty could potentially lower LHIB’s FY22 revenue by 0.9-9% and net profit by 633%,” he said.
The MIDF remained “neutral” on Leong Hup with an unchanged target price of 47 sen as the findings are tentative and the proposed direction has yet to be decided.