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(A) First Generation {Grand parent stock}

In 1988, Arbor Acres (Malaysia) 1991 Sdn Bhd ("AAM") (formerly known as Leong Hup (GPS) Farms Sdn Bhd) was the pioneer company in Malaysia to rear grandparent stock (GPS) imported directly from USA. Typically, each broiler grand parent stock ("GPS") starts producing in their 24th week and has a lifespan of 68 weeks. During this period, each broiler GPS can produce 55-broiler parent stock. During the production stage (24 - 68 week), hatchery eggs are sent to GPS' hatchery for 3 weeks incubation, after which the parent stock ("PS") day old chicks ("DOC") are sold to breeder farms. Of the 1.7m broiler PS DOC produced per annum, 36% are sold to LHPF, 34% sold to other independent breeder farms, 20% exported to its Indonesia operation and the remaining 10% exported to other countries.

In 1992, Leong Hup invested and set up its GPS farms with the total production of 500,000 broiler PS DOC per annum in the Philippines. The broiler PS DOC are catered mainly for the Philippines' market.

(i) Breeding Broiler DOC
Leong Hup Poultry Farm Sdn Bhd ("LHPF") buy broiler PS DOCs from AAM for its breeding activities. Broiler PS DOC are then transferred to the breeder farms located throughout Johor, Melaka, Ipoh and Negeri Sembilan. During the fertile period (week 24 to week 68), hatching eggs produced are sent to hatcheries to hatch broiler DOC. With a total 8 million of broiler DOC per month, of which 30% are sold to Leong Hup Contract Farming Sdn Bhd ("LHCF") and 70% are sold to independent broiler farmers.

(ii) Breeding Commercial Layer DOC
LHPF breeding activity also includes breeding commercial layer DOC. All the layer PS DOC are imported from Euribrid and Isa, Holland. The total production of commercial layer DOC is approximate 6 million per annum which account for 30% of the commercial layer DOC market in Malaysia.
LHPF also holds 100% distribution rights for the Dutch Euribrid Hisex layer PS DOC within Malaysia, Singapore and Brunei.

(i) Broiler Farming
5% of the total broiler DOC production is transferred to LHBF through LHCF for rearing and the grown broilers are then sold back to LHCF.

(ii) Contract Farming
The contract farming activities are undertaken by LHCF. Under contract farming scheme, LHCF supplies contract farmers with DOC, feeds, vaccines and technical know-how under a guaranteed buy-back agreement at a fixed contract price. Presently LHCF has 143 contract farmers with a monthly production of approximate 2.1 million broilers distributed to locally and the Singapore market.
Under the contract farming scheme, we foresee that more and more independent broiler farmers will join the scheme. The reasons are as follows:

a) Enjoy fixed purchase price of broiler DOC, feeds and vaccines regardless of market conditions;
b) Only need a small working capital as they receive DOC, feeds and vaccines on credit terms and then offset against the selling of grown broilers;
c) Predetermine the selling price of broiler and can avoid the unnecessary problems dealing with unscrupulous middlemen;
d) LHCF provides free veterinary services and technical know-how to all the contract farmers.

(iii) Commercial Layer Farming - Table Eggs Production
Commercial layer DOC are purchased in-house from LHPF and transported to Teo Seng Farming Sdn Bhd ("TSF") farms for rearing. Each commercial layer can produce about 310 eggs during their life cycle of 80 weeks (20 weeks for growing, 60 weeks for production). TSF presently have 7 layer farms and 5 pullet farms with a total production of 75 0,000 table eggs per day.

(i) Processing
(a) Fully-grown broilers are purchased by Ayam A1 Food Corporation Sdn Bhd ("AAFC") through open market arid LHCF. They are then sent to our processing plant in Sungai Buloh, Selangor. The processing plant of AAFC has a capacity of 3800 birds per hour. After processing, the birds are sold to local supermarkets, restaurants, hotels, factories and wet markets. Some are sold in-house for further processing and the finished products are sold at our outlets under brand name of "Ayam A1".
(b) Further processing activities are undertaken by Ayam A1 Food Processing Sdn Bhd ("AAFP") to produce chicken parts, sausages, meatballs, burger patties, etc.
(c) The processing activity in Singapore is undertaken by Lee Say Sugar Factory Pte Ltd ("LSSF") with daily production of 35,000 broilers and distributed throughout Singapore.

(ii) Retailing
LHH owns 6 retail outlets known as "Ayam A1" stores throughout Peninsular Malaysia. These outlets sell roasted and fresh chicken, and related products such as chicken parts, meatballs, burger patties and sausages. Stocks are purchased in-house from AAFC and AAFP.

(iii) Provision of poultry medicines and vitamins
LHH owned 51% stake in F.E. Venture Sdn Bhd ("FEV") - involved with the trading of poultry medicines and vitamins. FEV supplies medicines and vitamins to Leong Hup Group as well as to local markets.