QL Resources holds steady amid tests

SHAREHOLDERS at QL Resources Bhd’s annual general meeting this week were concerned about the correction in its share price. The stock has eased by 13% or 63 sen to RM4.13 year-to-date.

If they were long-term investors, the price drop would have been seen as a healthy correction as two decades ago, the stock was trading at an average of about 15 sen a piece.

It has been on an uptrend since then.

The Chia family-run QL Resources could have probably gone past its historic high of RM4.90 hit early this year if not for the government’s move to end the price control and subsidiaries mechanism for chicken eggs which had cost Putrajaya some RM2.5bil over 2022 to 2024.

The government cut the 10 sen per egg subsidy in May to five sen and early this month removed that as well. That unnerved some investors and analysts.

While the share has rebound by more than five sen since early August, analysts believe there could be some challenges to retest its highs.

Maybank Investment Bank Research, which has a “hold” call on the stock with a target price of RM4.25 a share, expects operating challenges to persist for the group’s core integrated livestock farming (ILF) business.

The removal of egg subsidies is forecast to potentially drive margins further down in the second quarter of financial year 2026 (FY26). This is as egg demand-supply fundamentals determine the market equilibrium price.

QL Resources’ Group CEO Chia Song Kooi says it has been able to pass on the five sen removed subsidy to consumers and foresee the market to remain stable because eggs are still the cheapest form of protein source in this country.

More importantly, the stronger ringgit and cheaper feed stock prices could help lower group production costs and thus improve margins of the ILS business which accounted for 52% of group revenue of RM7bil in FY25 and accounted for almost 40% of pre-tax profit.

Chia believes improved productivity will also help the ILS business as well.

QL Resources’ integrated poultry business operations includes broilers, day-old chicks and layers, supported by feed mill and trading business.

The egg business alone contributes about 10% of QL Resources revenue.

The group also has poultry operations in Indonesia and Vietnam, where the large populations continue to offer a market opportunity, he says.

While the ILF segment’s earnings are expected to stay elevated, RHB Research fears its earnings growth may start to decelerate from the high base following the end of the government subsidy programme.

Higher tourism numbers could benefit the company’s ILS business as well.

Nevertheless, growth of its businesses remains a major focus be it organically or via acquisitions if right for the group.

In house, QL Resources aims to grow its FamilyMart convenience stores business (CVS) to 600 stores by FY27 despite offering thinner margins than its manufacturing business.

It already has some 470 FamilyMart outlets now across the country and the new stores will be in underserved areas.

The business faces labour cost pressures including from the expanded sales and services tax, not to mention intense competition from the entry of new foreign brands.

Pricing power is lacking because consumer sentiment is very sensitive.

Hence, QL Resources’ strategy is to focus on its product offering that meets customer demand.

This means it has to get a better assortment of products to suit the customer’s requirement. The CVS business accounted for 17% or RM1.1bil of FY25 revenue.

Chia says QL Resources aims to gradually divest its palm oil assets to make clean energy its new business pillar.

The palm oil business has some 16,000ha, two-thirds of it in Indonesia and the rest in Sabah. About 10,000ha is planted, 9,000ha of which is in Indonesia.

The group is currently in a legal dispute with its venture partner in Indonesia which may take a couple of years to resolve, according to Chia.

The direction is quite clear – whatever money QL Resources gets from divestment in the palm oil business will be invested in growing the clean energy business that is underpinned by the government’s National Energy Transition Roadmap.

“We see a lot of opportunity and room for innovation. That’s where we will channel the investments.

“QL Resources is now looking at solar and we are doing a lot of water-related projects. New opportunities include battery energy storage. So, that’s where we are focusing a lot,” Chia says.

QL Resources spent RM110mil to buy Plus Xnergy in October 2024 to that end.

The company and BM Greentech Bhd will form the backbone of the clean energy push.

Chia says the palm oil and clean energy made RM790mil in FY25 (11% of total revenue) and the business can grow to hit the billion mark in future.

At such a scale, the energy business may get better valuation from its own listing.

QL Resources’ marine product manufacturing business is another focus of growth.

A new production facility is in the works in Hutan Melintang, Perak, on some 90 acres.

The group’s current plant there is on a 30-acre site.

The new facility will be developed over phases with a central storage to be built to enhance the group’s product range into soya and chicken-based product range apart from its core seafood offerings.

Chia says the company will spend about RM300mil in capital expenditure in FY26 to drive value through technology and innovation.

With its past performance as a benchmark, it is not surprising analysts have maintained their “hold”, “neutral” or “market perform” call on QL Resources.