KUALA LUMPUR, Nov 4 — QL Resources Bhd. plans to increase capital expenditure in the next two years as the biggest fishmeal producer in Malaysia bets on Asian food demand to drive its expansion.
Spending will total RM250 million in the year ending March 2016, rise 20 per cent to RM300 million in 2017 and then to RM350 million in 2018, founder and Managing Director Chia Song Kun said in an interview Monday in Shah Alam, west of Kuala Lumpur. The funds will be used mostly to add poultry farms, fishing boats and factories to extend a decade-long growth in profit, he said.
The Malaysian company, which exports seafood, breeds chickens for eggs and grows palm oil, posted profit every year since at least fiscal 2009 and its shares have doubled in the past four years. CIMB Group Holdings Bhd. predicts QL Resources, its top consumer pick, may rise more than 80 per cent to 7.58 ringgit by 2018 on growth prospects and management with “great ambition.” Developing East Asia and the Pacific is forecast to expand 6.4 per cent in 2016, outpacing a 3 per cent gain worldwide, the World Bank said in October.
“We have been a fast-growing company,” said the 65-year-old son of a fisherman, who quit teaching to start the family business in 1987. “We still have a lot of capital expenditure. As long as you have money to invest, whether it takes one year, three years or five years, there will be business and then there will be profit.”
QL — an acronym for Quan Li which means “everybody wins” in Chinese — has expanded its production base to Indonesia and Vietnam in recent years to take advantage of rising incomes and a combined 347 million population in the two Southeast Asian nations, Chia said. Earnings from overseas operations may account for a fifth of the company’s profit in three to five years, compared with as much as 10 per cent now, he said.
The company earns 60 per cent of its revenue from livestock farming and 27 per cent from marine products. It will continue to invest part of its retained earnings and borrowings in the three core businesses of livestock farming, marine products, and palm oil to continue generating returns, Chia said.
Malaysia’s consumption of chicken and duck eggs has climbed 46 per cent to an estimated 9.9 billion in 2014 from 6.8 billion in 2005, according to government data. Consumption of poultry meat jumped 82 per cent to 1.4 million metric tons, the data showed.
QL has grown from a local feed trader to a global agricultural food company and is now Asia’s biggest surimi producer, according to CIMB. Its diversification will lead to sustainable earnings growth, the bank said.
Top pick
“QL Resources tops the scoring in our long-term consumer sector stock-picking matrix mainly owing to its high scores in the management and growth categories,” CIMB analyst Terence Wong wrote in the report. The management has shown “great ambition and executional capability” to deliver consistent earnings growth over the past 27 years, he said.
The stock has risen about 25 per cent this year to RM4.11 ringgit. The benchmark FTSE Bursa Malaysia KLCI Index declined 4.8 per cent in the same period.
Still, weaker consumer spending has hurt demand in Malaysia this year after the government introduced a new consumption tax, while a volatile ringgit has made it more difficult to plan product prices, Chia said.
“Never mind that it’s an old business, you must be able to create value,” Chia said of the company that’s 53 per cent- controlled by his family along with his wife’s siblings. “Business doesn’t need fantastic ideas. The opportunity is everywhere.” — Bloomberg
