Attesting to the strong foundation upon which the group has grown, QL Resources Bhd — winner of The Edge Billion Ringgit Club’s Company of The Year award in 2011 — has continued to deliver growth amid the challenging Covid-19-hit operating environment.

Already among the largest producers of surimi and eggs in Southeast Asia, QL’s downstream expansion has turned it into an integrated agro-based business.

According to The Edge BRC awards methodology, QL chalked up a risk-weighted profit after tax (PAT) compound annual growth rate of 17% as earnings grew from RM195 million in the financial year ended March 31, 2018 (FY2018) to RM311.9 million in FY2021. That was enough for the company to take home The Edge BRC award for the highest growth in profit after tax (PAT) over three years in the consumer products and services sector.

In its outlook for the year, QL described FY2022 as “another year of navigating through rough seas”. Its net profit for the financial year slipped 30.3% year on year to RM217.35 million, owing to super high raw material prices, rising fuel costs and disrupted operations.

QL’s businesses are divided into four major segments, namely marine products manufacturing (MPM), integrated livestock farming (ILF), palm oil and clean energy (POCE), as well as convenience store chain (CVS).

The CVS business — which comprises the FamilyMart retail chain and food production operation QL Kitchen — was identified as a catalyst for its business growth after it recorded the strongest growth. The segment saw a threefold jump in profit before tax (PBT) to RM43 million in FY2022 from RM12.56 million in FY2021.

Having been in operation for about six years, FamilyMart serves ready-to-eat and easily prepared food to meet the needs of a busy lifestyle. QL aims to double its store count to 600 over five years from about 310 currently. It also wants to open 300 FamilyMart Mini vending machines by FY2026.

MPM’s PBT was down 23% to RM200.76 million in FY2022 from RM260.82 million in FY2021, dragged by pandemic-impeded capacity, a less favourable labour situation, low fish landings and higher operating costs. For ILF, its PBT more than halved to RM32.12 million in FY2022 from RM72.62 million in FY2021, due to skyrocketing feed prices, particularly corn and soybean.

Similarly, POCE’s PBT slipped 47.6% to RM45.33 million in FY2022 from RM86.56 million in FY2021, on the back of the absence of a one-off re-measurement gain arising from the consolidation of its 52.57%-owned Boilermech Holdings Bhd.

QL, which has yet to release its earnings results for the second quarter ended Sept 30 (2QFY3/2023) at the time of writing, mentioned in its notes appended to its first quarter results that its management was “optimistic that the overall business performance will remain positive with the normalisation of economic activities and continued cost subsidies by the Malaysian government to help mitigate high farming costs”, despite the prolonged Russia-Ukraine war, increased Sino-US geopolitical tensions and heightened risk of a global recession triggered by aggressive interest rate hikes.

According to Bloomberg data, there are six “buy” calls on the stock, five “hold” and one “sell”. The consensus target price at the time of writing was RM5.51.

PublicInvest Research expects QL to register stronger quarterly results ahead, driven by higher exports of surimi-based products and sales from FamilyMart.

“We believe that higher egg selling prices in Vietnam and Indonesia coupled with the ongoing cost subsidy for its Malaysian operations should help to mitigate the impact of rising feed costs.” Additionally, we think QL’s current valuations look attractive, trading at a forward PER (price-earnings ratio) of 40 times,” the research house said in a Sept 29 note.

Meanwhile, CGS-CIMB Research sees better ILF earnings in FY2023 on the back of higher average selling prices, sales volumes and feed subsidies from the government. However, it highlights that Boilermech’s near-term earnings outlook will be hampered by the high cost of steel and solar panels. “Its palm oil business is also likely to face challenges due to lower CPO (crude palm oil) prices and the rising cost of production,” it said in an Aug 29 note.

In FY2022, QL’s dividend payout ratio was 39.2%. It paid out a dividend per share of 3.5 sen for the year.

The Chia family has a controlling stake in QL through CBG (L) Pte Ltd and Farsathy Holdings Sdn Bhd, with 40.25% and 11.57% equity interest respectively. The Employees Provident Fund, its third-largest shareholder, has pared its stake to 5.28% from 7.67% at end-2021.

The most senior members of the Chia family on the QL board are executive chairman Dr Chia Song Kun, 72, who was named the BRC’s Outstanding CEO & Value Creator in 2019, and his brother and managing director Chia Song Kooi, 62.