ChiaWritten by Chong Jin Hun Monday, 01 June 2009 10:52 SHAH ALAM: Food-based QL Resources Bhd has earmarked RM280 million as capital expenditure (capex) for its current fiscal year and the next, deemed pivotal to spur its regional merger and acquisition (M&A) plans, and to improve its manufacturing facilities.
Some RM130 million and RM150 million are allocated for the financial years (FY) ending March 2010 and 2011, respectively. To be financed via internal funds and bank loans, the capex will facilitate the expansion of its marine products manufacturing, integrated livestock farming and oil palm operations.
“We think these three segments have a lot of room to grow, and we are looking at acquisitions more aggressively.
“Innovation is a core value of QL,” its managing director Chia Song Kun told The Edge Financial Daily. QL had allocated about RM160 milllion for FY09 capex.
Its marine products division involves deep-sea fishing and production of surimi or fish paste. With three marine products factories across Malaysia — in Perak, Johor and Sabah — QL also makes surimi-based products such as fish balls, besides fish and poultry feed.
It is also engaged in poultry farming with broiler, breeder and layer operations in Kedah, Selangor, Negri Sembilan, Sabah and
Broilers are bred for meat, and breeders and layers for their eggs for hatching and consumption, respectively. QL’s chicken farms can produce some 2.1 million eggs a day.
QL is also the owner of some 1,200ha of oil palm plantation in Sabah, and another 20,000ha in Kalimantan, Indonesia.
The firm’s planned surimi factory in Surabaya, Indonesia, is on track. Chia said QL was in the midst of finalising land conversion with the Indonesian authorities, and upon approval, construction of the plant would take about one-and-a-half years to complete.
Chia said the project’s initial phase involved a minimum investment of US$8 million (RM28 million) which will be financed via internal funds.
Meanwhile, QL is still studying the feasibility of operating chicken farms in Vietnam, an initiative which may involve a capital outlay of up to RM40 million.
The company is monitoring industry dynamics in the Indochina country where per capita consumption of eggs is deemed small. At the same time, it is also worth noting that Vietnam is a key destination for eggs from neighbouring China.
“We take this opportunity of the economic slowdown to have a second review of the market,” said Chia whose stewardship had seen QL growing into a billion-ringgit business.
QL’s financials in the fourth quarter ended March 2009 fell on an annual and quarterly basis.
Net profit fell 10.6% to RM18.84 million from RM21.07 million a year earlier, while revenue dipped 3.8% to RM319.21 million from RM331.88 million. Revenue from its marine products and livestock units rose by an annual pace of 10% and 9% respectively, while its oil palm operations topline fell 41%.
However, full-year net profit expanded 10.6% to RM89.33 million from RM80.8 million a year earlier while revenue climbed 6.9% to RM1.4 billion from RM1.31 billion.
In quarterly terms, net profit fell 20.7% from RM23.76 million while revenue declined 1% from RM322.58 million due to seasonal factors which had curbed earnings from the marine products, and oil palm operations.
QL has earned a place in analysts’ good books despite the lower quarterly results.
“We like QL for its proven management, strong profit track record, and consistently high return on equity. In a recessionary economy, QL stands out for its defensive earnings qualities due to the inelasticity of consumer demand for staple food items,” Hong Leong Investment Bank Bhd analyst Jason Saw Koon Khim wrote in a note.
Hong Leong, however, lowered QL’s FY10 and FY11 earnings per share estimates by between 3% and 4%, taking into account the delay in starting up the Surabaya surimi plant, and excluding farming contribution from Vietnam.
The research house, however, maintained its buy call on QL with a fair value of RM3.
OSK Research Sdn Bhd analyst Law Mei Chi, meanwhile, raised the target price for QL shares by 11 % to RM3.68 from RM3.32 with a buy call. It maintained its FY10 earnings forecast for the company.
QL rose four sen or 1.49% to RM2.72 last Friday, with 55,500 shares traded.
The stock has gained 15.74% so far this year, compared with the Kuala Lumpur Composite Index’s 19.09% rise.
This article appeared in The Edge Financial Daily, June 1, 2009.
