Going big on shrimps

Dr Chia (right): ‘The problem with running a marine business is that resources tend to deplete, which is why we are investing in a sustainable marine business such as shrimp farming.’ With him is financial reporting and investor relations head Freddie Yap.

QL Resources to spend bulk of RM150mil capex on the business

PETALING JAYA: QL Resources Bhd is spending RM150mil in capital expenditure (capex) in these two years, and a big bulk of it is being used to grow its shrimp farming business.

It has even set aside RM15mil to purchase a 900-acre parcel of land in Kota Buruk in Sabah for future aquaculture expansion.

While QL Resources is not ready to expand into the 900-acre project just yet, it is an indication of the company’s intention to ramp up its shrimp farming activities.

“The problem with running a marine business is that resources tend to deplete, which is why we are investing in a sustainable marine business such as shrimp farming,” its group managing director Dr Chia Song Kun said in a press briefing after the company’s annual general meeting in Kuala Lumpur.

The multi national agro-food corporation has in the past year rolled out projects in marine, rolling out a prawn agriculture farm in Kudat, Sabah and continued works in the 300-acre pioneer commercial farming project costing RM40mil.

It also started a downstream processing plant for prawns in Tuaran, Sabah, which took up another RM25mil in capex as well as a further RM25mil to acquire over 60% in Kembang Subur Holdings Bhd, a 10-year-old marine shrimp hatchery business in Kuantan, Pahang.

Currently, the 900-acre parcel is pending transfer approval.

“We will only move on to that 900-acre project once we make ourselves comfortable in the existing phase of our prawn agriculture business,” Chia said.

He said RM150mil in capex was considered a low capex year for QL Resources as it consolidated its businesses.

“After many years of aggressive capex investments in Vietnam, Indonesia and Malaysia, we slowed down our capex expenditure in 2014 and 2015 as we needed a time of consolidation.

“We will intensify the capex amount for further expansion in the marine and livestock business in 2017 and 2018 as we must continue to expand,” he said.

In 2014, QL Resources’ shrimp farming business yielded about RM200mil profit, which the group hoped to double this year.

CIMB Equities Research noted in its report that QL Resources’ earnings growth from new ventures and capacity expansion in its main businesses were potential re-rating catalysts for the agro-food manufacturer.

The research house maintained its “add” recommendation on QL Resources with an unchanged target price of RM4.93 and retained its position as top pick in the consumer sector.

For the first quarter ended June 30, 2015, QL Resources’ flattish net profit of RM40.9mil, up a mere 1.2% from the same period last year, was in line with CIMB Equity Research’s expectation.

Similarly, revenue was RM655.3mil, a near flatline from last year’s RM653.6mil.

“It accounts for 19% of our full-year forecast and 18% of concensus,” it said.

It was a seasonally weak first quarter performance but the second quarter was picking up, Chia said.

Meanwhile, Chia said the depreciation of the ringgit as well as the depressed commodity prices had impacted different sectors in the agriculture business.

“Because of the “mixed” effect, it had a neutral overall effect on the group performance,” he said.“Ultimately, we only need to reassess the situation if the currency drops much further and CPO prices become much worse.”

“With marine products, it was positive as 60% of our products are for export, so we benefit from the depreciation of the ringgit. For poultry farming, however, our raw materials such as chicken feed is imported so our costs have increased in terms of currency loss,” Chia said.

Meanwhile, QL Resources has written in to Lay Hong Bhd to request a board seat having not been re-elected in the company’s last AGM.

Although QL Resources is the single, largest shareholder with a substantial stake of 38% in Lay Hong, its shareholding is classified as an investment rather than an associate holding since it had no representation on the board, Chia said.

“While we have written in to request a position on the board, we have no plans to launch another hostile takeover at a higher price.

“However, we are open to all possibilities, even selling (the stake),” he said.

He added that the stake in Lay Hong represented only about 2.5% in the group’s portfolio.

“It is nevertheless a strong, profitable asset,” he said. “We just need to sort out the board seat matter.”