August 28, 2008

QL Resources Plans Buyout, Expansion

By Chong Pooi Koon

QL RESOURCES Bhd, a diversified agriculture group, may spend RM170 million a year on capital expenditure in the current fiscal year and next to buy out rivals and expand in the region.

Managing director Chia Song Kun said the proposed higher spending for financial years ending March 2009 and 2010 would go towards more acquisitions, new factories and increasing production capacity.

QL is the biggest surimi producer in Asia and the largest fishmeal maker in Malaysia. It is also involved in poultry and egg production and oil palm.

Chia said its expansion into Vietnam for livestock farming and new surimi plant in Indonesia will need investment. More money will also be ploughed into developing 20,000ha of oil palm plantation, mostly in Indonesia.

"Malaysia is saturated, but we can still grow by buying other poultry and egg farms. We don't set up new facilities to squeeze the market," Chia said after a shareholder meeting in Shah Alam, Selangor, yesterday.

Vietnam and Indonesia, because of their close proximity and big population, hold great growth potential for a food-based company like QL, he added.

Financing the expansion will not be a problem as the company generates about RM150 million free cash flow every year, Chia said.

On top of that, QL undertook a share placement in 2006 to cut its gearing level to just 20 per cent against its shareholder fund, mostly in long-term debt. The low gearing will allow the company to borrow from banks when needed, he said.

Chia gave the assurance that the heavy investment in the next two years would not affect its dividend policy of paying out between 25 per cent and 30 per cent. The quantum should be stable with its steady earnings growth, he said.

"Growth in the first quarter shows that the momentum is still there. We are optimistic that we are on track for most analysts' estimates."

Net profit in the first quarter to June 30 grew 40 per cent to RM21.5 million as revenue rose 16 per cent to RM364.5 million.

QL has had a consistent record of 26 per cent average earnings growth in the past eight years since its listing in 2000.

"Analysts are expecting 15 to 20 per cent growth from us this year. We should be able to perform to that expectation," Chia said.

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