KUALA LUMPUR: Leong Hup International Bhd's acquisition of The Baker's Cottage Sdn Bhd has positive synergies as it will allow the group to move downstream and open up a revenue stream for its poultry products, says Maybank Investment Bank research.

The research house, which maintained its "sell" recommendation on the stock, said the venture into the quick-service restaurant business will open up a new demand avenue for its poultry supply, increase its customer base and benefit from economies of scale.

"The acquisition multiple equates to 33x PER (1-year trailing) which is above LHIB’s 17x FY21 PER.

"Based on our estimates, assuming interest cost of 4% and TBC’s FY19 profit after tax of MYR0.6m, this acquisition is earnings neutral to LHIB," it added.

Leong Hup entered into three-related party transactions to acquire The Baker's Cottage for RM20mil cash, which it intends to fund with a combination of borrowings and internally generated funds.

The target completion date for the acquisition is by 3Q20.

According to Maybank IB, Leong Hup aims to expands its The Baker's Cottage store network but has not yet committed to a store opening target.

The research house kept its earnings estimates on the group and a target price of 56 sen.