| More acquisitions by QL abroad? |  |  |  |
| Written by Chong Jin Hun | ||
| Wednesday, 25 August 2010 15:25 | ||
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| Having acquired a controlling stake in a local egg-producing rival, the spotlight now falls on QL Resources’ overseas expansion as it pursues organic growth, and positions itself for potential acquisition opportunities. The major food player, which produces marine products, undertakes poultry farming as well as oil palm plantation operations, expects to register its maiden foreign income from Indonesia and Vietnam in the next financial year ending March 31, 2012 as the company’s operations in these countries take shape. “It’s not necessarily (acquisition of listed companies abroad),” QL Resources managing director Chia Song Kun told reporters at the company’s shareholders’ meeting here yesterday. “It’s too early to give figures,” he added, when asked about the level of foreign income contribution QL Resources hoped to achieve in the future as its overseas expansion gained further momentum. Chia, whose company is Malaysia’s largest egg producer with a 20% market share, said the firm would continue to look at acquisition opportunities abroad as long as there was a strategic fit with its core operations. On Monday, QL Resources announced it had acquired 11 million shares or 23.29% of rival Lay Hong Bhd for RM11.55 million or RM1.05 a share via an off-market transaction. The stake was acquired from London Biscuit Bhd (see related article). At RM1.05 per Lay Hong share, the acquisition price translates into 0.52 times its net assets per share of RM2 as at March 31, 2010, and a trailing price-earnings ratio of just 4.7 times. News of the acquisition created some “egg-citement” for the sector, sending the stocks of both companies to fresh highs yesterday. Lay Hong was the top performer on the local bourse yesterday, surging as much as 61 sen or 51.2% to RM1.80, its highest in over nine years since April 2001. The stock closed at RM1.73 for a gain of 53 sen.  Apart from expanding its core businesses through acquisitions, QL Resources may also evolve into an independent power producer with its palm biomass pelletising project, says managing director Chia Song Kun That means QL Resources is already sitting on a “paper gain” of 65% for a one-day investment. QL Resources said the purchase was a good investment which could result in potential synergy between the two entities. An industry source told The Edge Financial Daily that QL Resources saw potential synergy between itself and Lay Hong. This is by virtue of Lay Hong’s layer, broiler and feedmeal operations. The source added that QL Resources also took note of Lay Hong’s financials, and foresees synergistic opportunities in the areas of sourcing, marketing network and operational efficiency. According to him, it is still too early to say if QL Resources would request for a board seat in Lay Hong. For now, it is also uncertain if the acquirer intends to raise its stake in Lay Hong, the source said.
Analysts said QL Resources’ recently released first-quarter results were within their and consensus estimates. They added that the group was likely to register strong numbers in the years ahead as it begins harvesting the fruits of its expansion. OSK Research Sdn Bhd analyst Law Mei Chi said: “We like QL Resources’ resilient business as well as strong management team, which will continue to drive growth in all its three core segments.” Its marine products division involves deep-sea fishing and the production of surimi-based or fish paste products. The company has factories across Malaysia — in Perak, Johor and Sabah — as well as Indonesia. The company is also engaged in poultry farming with broiler, breeder and layer operations in Kedah, Selangor, Negri Sembilan, Sabah and Sarawak. It also runs poultry farms in Indonesia and Vietnam. Broilers are bred for meat while breeder and layer operations involve the production of eggs for hatching and consumption purposes, respectively. QL Resources owns some 1,200ha of oil palm plantation in Sabah and 20,000ha in Kalimantan where the company plans to buy more oil palm tracts. TA Securities Holdings Bhd wrote in a note: “Going forward, we expect QL Resources’ growth to remain strong thanks to its experience in manoeuvring the business into profitability even during economically challenging periods. “Although management usually earmarks 10%-15% annual growth, however, we believe QL Resources could comfortably grow at more than 20% in FY12.” TA and OSK have maintained their buy calls on QL Resources with fair values of RM5.30 and RM5.20, respectively. QL Resources’ net profit rose by 20.1% to RM26.8 million, or 6.86 sen a share, in the first quarter ended June 30, 2010, compared with RM22.32 million, or 5.69 sen a share, previously. Revenue grew 7.9% to RM384.51 million from RM356.34 million. As at June 30, 2010, its net assets per share stood at RM1.35. The company had cash of RM70.72 million and debts of RM401.42 million. This translates into a net debt position of RM330.7 million, or a net gearing of 0.6 times based on the company’s equity of RM526.66 million. Yesterday, its shares advanced as much as nine sen or 2% to RM4.68 before settling unchanged at RM4.59. QL Resources’ Chia told The Edge Financial Daily in an interview in June that the company was setting aside up to RM600 million for capital expenditure (capex) in the current and next two financial years, as it pursued organic expansion and acquisitions. The company is expected to earmark some RM200 million in the current financial year (FY) ending March 31, 2011, while FY12 and FY13 may each see capex allocations of between RM150 million and RM200 million. According to Chia, about 40% of the planned capex for the three years is intended to finance expansion of the group’s plantation business which involves downstream projects, including the commercialisation of palm biomass as a source of renewable energy. QL Resources’ marine products, and poultry farming units will each be allocated 30% from the planned budget which would be financed via the group’s internally-generated funds or bank loans. Chia said the company may also raise money via a private placement of new shares, or bond issues. QL Resources to evolve into an IPP? QL Resources’ palm biomass project may potentially see the company evolve into an independent power producer (IPP). Chia said excess electricity generated from the company’s palm biomass pelletising project could be sold to state-owned utility Tenaga Nasional Bhd. “This concept is not green IPP yet,” he said. Last Wednesday, the company said it had finalised the pre-commercialisation stage of the renewable energy project. This step enables the company to start commercialising the empty fruit bunch-based pellet, via the 40,000-tonne per year plant within its palm oil mill in Tawau, Sabah. QL Resources’ renewable energy initiative essentially uses palm oil mill effluent to generate methane. This in turn is used to generate electricity for the production of the pellets, deemed an alternative source of fuel to hydrocarbons such as coal. The zero-waste renewable energy project, which constitutes a part of the company’s bigger plan to develop palm biomass renewable energy business in Malaysia and Indonesia, will start operations by year-end. QL Resources is certainly moving forward. The company is not only expanding its integration processes within its core surimi, poultry and palm oil divisions, but also extending its tentacles to complementary and offshoot businesses, such as biomass energy. This article appeared in The Edge Financial Daily, August 25 2010. |
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