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QL Resources: Weak ringgit hurts ASEAN expansion plans
KUALA LUMPUR (NewsRise) — Malaysia’s egg producer and marine products maker QL Resources is reviewing its plan to expand businesses in Vietnam and Indonesia as a weakening ringgit potentially makes foreign operations costlier, a senior company executive said.
QL has been eyeing growth opportunities in Indonesia and Vietnam, where despite their larger populations, per capita consumption of eggs lags that in Malaysia.
“Potential for expansion is big, however for new expansion, investment capex will be reviewed in view of the ringgit depreciation,” the company’s Head of Financial Reporting and Investor Relations, Freddie Yap said in an interview.
The move comes at a time when the Malaysian ringgit – Asia’s worst-performing currency so far this year – has been plumbing new 17-year lows, making any expansion abroad costlier for the Shah Alam, Selangor-based company.
The ringgit slipped below 4.3800 against the U.S. dollar on Friday, bringing total loss so far this year to 20%, as the petroleum-exporting country grapples with a plunge in crude oil prices amid a slowing economy. A political scandal centring on Prime Minister Najib Razak’s alleged financial links with debt-laden state-run investment company 1 Malaysia Development Bhd is also weighing on the currency as foreign investors are shunning Malaysian shares and bonds.
“Room for growth in Indonesia and Vietnam is still big due to rising income levels (in those countries),” Yap said.
Indonesia, a sprawling archipelago of 250 million people and Southeast Asia’s largest economy, annually consumes about 90 eggs per capita while Vietnam’s per capita consumption stands at about 70 eggs. The figures lag richer neighbour Malaysia, where people consume about 300 eggs a year. But their vibrant economies are helping create more jobs and raising wages that are prompting consumers to shift toward more protein-based diet including eggs.
In order to benefit from the consumption gap, QL Resources plans to raise production capacity to 5.25 million eggs a day in the fiscal year ending March 31 from last year’s daily capacity of 4.85 million eggs.
Moreover, the company has initiated a major branding exercise to boost earnings. “Egg branding strategy is meant to differentiate branded eggs from commodity eggs,” Yap said. More than 50% of its eggs sold in Indonesia, where the company also supplies to fast-food giant McDonalds, carries the company’s brand, he added.
Shares of QL Resources have outperformed the broader Malaysian market, surging 23% so far this year, as investors seek refuge in consumer staples stocks that remain relatively resilient against economic and demand shocks. At 12.30pm local time, QL shares were trading at 4.04 ringgit, down 2.2% from Friday’s closing price.
Other gainers in the sector includes Nestle (Malaysia), which rose 6.5%, while Dutch Lady Milk Industries climbed 15% year-to-date. In contrast, the benchmark FTSE Bursa Malaysia KLCI lost nearly 9% this year.
QL’s fiscal first-quarter net profit grew 2.2% from a year earlier to 40.9 million ringgit ($9.3 million) while revenue edged a mere 0.3% higher.
Still, analysts, like BIMB Securities’ Law Mei Chi who kept the stock on Buy rating, is optimistic that the company will achieve 18% net profit growth this fiscal year owing to its “inelastic product demand and resilient business model.”
