YENHER Holdings Bhd is optimistic that the group will see growth in 2021 and 2022, in tandem with increasing demand for animal health and nutrition products for the country’s expanding livestock industry.

       “In 2020, our sales saw double-digit growth compared to 2019. We are categorised as essential services and still able to operate at 60% workforce capacity during the lockdown.

       “We are cautiously optimistic the (business) numbers for 2021 to 2022 will be better than 2020, ” group managing director Cheng Mooh Tat tells StarBizWeek.

       Yenher, en route for a listing on the Main Market of Bursa Malaysia on July 15, recorded a 13.2% year-on-year jump in revenue to RM202.6mil while net profit was 13.4% higher to RM22.4mil for its financial year ended Dec 31, 2020 (FY20).

       The group, which is based in Seberang Prai Selatan, Penang, manufactures and distributes animal health and nutrition products, as well as provides value-added diagnostic and material analyses services.

       Its customers are mainly farmers, feed millers as well as livestock integrators operating in the poultry and swine sub-sectors.

       In its initial public offering (IPO) prospectus, Yenher said the higher sales in FY20 was due to customers increasing their inventory levels to minimise disruptions to their supplies amid the Covid-19 outbreak, as well as the group’s continuous marketing efforts.

       The group also saw higher gross profit margin from its manufactured premixes, complete feed and formulated products as well as biotech animal feed ingredients.

       This was mainly due to lower raw material costs per unit as the group had bought larger quantities of raw materials, in anticipation of possible disruptions in its supply chain as a result of the Covid-19 outbreak.

       Mooh Tat said that to a certain extent, the group is able to pass on the higher raw material costs to its customers, following similar market price increases for animal health and nutrition products.

       He also pointed out that as a manufacturer with in-house research and development (R&D) capabilities, the group can modify the ingredients of its product formulation for cost savings.

       “We are able to use lower cost substitutes for raw materials but which still provide the same level of nutrients for livestock growth. This also helps our customers in controlling costs, ” said Mooh Tat.

       In recent years, Yenher has been growing its higher margin manufacturing segment and promoting in-house manufactured products.

       This has resulted in the group’s manufacturing segment growing from a 47% revenue contribution in FY17 to delivering 56% of revenue in FY20, with the balance 44% coming from its distribution segment.

       For FY20, manufacturing contributed 66% or RM34.67mil of gross profit, with the balance 34% or RM17.75mil from distribution.

       Gross profit margin for the manufacturing segment was 31% while distribution was 20%.

       At group level, the gross profit margin was 26%, while profit after tax margin was 11%.

       “Despite the lower margins, the distribution segment will continue to play an important role in our business as we want to be one-stop solution for our customers by offering them a wide range of products, ” said Mooh Tat.

       Within the next 24 months, Yenher is also looking to expand its sales to Myanmar, Bangladesh and China.

       For FY20, about 90% of the group’s revenue came from Malaysia, and the balance 10% from overseas markets.

       Indonesia was the largest export sales contributor (4.3% of revenue), folllowed by Brunei (3.45%) with the balance from Hong Kong, Belgium, Pakistan, South Korea, Nigeria, Thailand, Vietnam, Singapore and Taiwan.

       Yenher is also continuing to develop new in-house products including a probiotic additive, which is expected to be commercialised in September 2021, depending on the outcome from farm trials.

       Market share Based on a report dated June 8, 2021 by independent market researcher Protege Associates Sdn Bhd, Yenher’s FY20 revenue was 9.3% of the estimated RM2.18bil animal health and nutrition industry revenue in Malaysia in 2020.

       “Going forward, the animal health and nutrition industry in Malaysia is projected to expand by a compounded annual growth rate (CAGR) of 4.3%, from RM2.18bil in 2020 to RM2.69bil in 2025, ” added the report.

       It pointed out that animal health and nutrition products are critical components of a livestock farm’s operations in ensuring proper nutrition, health and hygiene of the livestock.

       “Animal health and nutrition ensure that animals achieve optimal growth, are free from disease and safe for human consumption, and are of a desired level of quality and taste.

       “It also helps to increase a farm’s yield by reducing mortality rates and ensuring that animals grow to marketable size, ” said the report.

       The Malaysian livestock industry is expected to continue growing throughout the period of 2021 to 2025, in line with its past performance from 2013 to 2020.

       The report stated that the production value of livestock in Malaysia had grown at a CAGR of 6.6%, from RM14.7bil in 2013 to an estimated RM23bil in 2020.

       The poultry sub-sector (which includes poultry meat and chicken and duck eggs) is the largest sub-sector at 74.4% of the total production value, followed by the swine sub-sector and the ruminant sub-sector (which includes milk, beef and mutton), with 17.6% and 8% of total production value, respectively.

       Protege Associates said consumption of livestock products had increased over the years due to a larger population and greater affluence.

       New plant to increase capacity The business dates back to 1982 when Mooh Tat’s father Guan Hoe started a business to trade in animal health and nutrition products.

       In 1991, Mooh Tat started Yenher Agro-Products Sdn Bhd in Penang, together with industry peer Danberg (M) Sdn Bhd to expand trading to include premixes (ingredients that complement basic animal feed), feed additives and vitamins.

       Two years later, Mooh Tat’s family acquired Danberg’s entire 51% stake in Yenher Agro.

       Yenher stated its competitive strengths include its experienced key management team of Mooh Tat and executive directors Cheng Mooh Kheng and Theoh Mooi Teng, who each have more than 25 years of experience in the animal health and nutrition industry.

       Other strengths are its wide range of products to meet diverse customer needs, in-house manufacturing ability with strong focus in product R&D, an in-house laboratory for diagnostic and material analyses on its products as well as an extensive sales and technical team comprising veterinarians, sales and marketing personnel, nutritionists and chemists.

       The IPO exercise will raise RM61.21mil, of which RM31mil will be used to build a new GMP (good manufacturing practices)-compliant plant, RM9.7mil to buy machineries and equipment for the new plant, RM16.71mil as working capital and the remaining RM3.8mil for listing expenses.

       The new manufacturing plant, located on a 464, 786-sq-ft freehold land owned by Yenher, is expected to be operational in the fourth quarter of 2023, and will house all the group’s operations on one site.

       As at May 31, 2021, both Yenher’s manufacturing plants are running at full capacity, based on one production shift of 8.5 hours per day, six days per week.

       To keep up with orders, the group has extended its production hours by an extra three hours daily.

       With the new manufacturing plant, the group’s monthly production capacity for its premixes, complete feed and formulated products will increase by 354% (from 573 to 2, 600 tonnes) while biotech animal feed ingredients will increase by 423% (from 287 to 1, 500 tonnes).

       “We will be able to meet the higher demand for our products. The new plant will have three production lines (compared to the group’s current single line), which will provide better flexibility (to produce different products) and improve efficiency, ” said Mooh Tat.

       The plant will also feature more automated processes, as the group wants to reduce its dependency on foreign workers.

       As at May 31, 2021, the group has 138 employees, of which 91 are locals while 47 are foreigners.

       Once the new site is fully operational, the group will also be able to save close to RM1mil a year on the rental costs for its current rented warehouse and biotech animal feed ingredients production site.

       Regarding its current head office, warehouse and a manufacturing plant which Yenher owns, the group may sell or rent out these premises after it moves to the new site.

       Yenher’s major shareholders are CGH Holdings Sdn Bhd (57.31%), Mooh Tat (18.39%), Mooh Kheng (8.9%) and Cheng Mooh Chye (8.9%).

       CGH Holdings is owned by Mooh Tat (50.8%) and his brothers Mooh Kheng (24.6%) and Mooh Chye (24.6%).

       The promoters of the IPO are CGH Holdings, Mooh Tat, Mooh Kheng, Mooh Chye and Theoh, who is Mooh Tat’s wife.

       Upon listing, the promoters will hold in aggregate 59.77% of the enlarged issued capital of 300 million shares.

       Yenher’s IPO of 106.19 million shares is at an offer price of 95 sen per share.

       Upon listing, the market capitalisation of Yenher will be RM285mil based on the offer price.

       For FY20, the group’s earnings per share (EPS) was 7.47 sen, based on the enlarged issued share capital upon listing, which translates into a price-to-earnings multiple of 12.72 times.

       The group has a dividend policy of paying out at least 40% of its net profit. For FY20, Yenher’s gearing ratio was 0.01 times (compared with 0.07 times for FY19).