See the original here

You might have recalled that an investment report was featured for QL Resources which talked about its robust growth ahead ranging from poultry farm producing broiler and eggs to new surimi processing plants expanding production capacity of frozen products.

One of the growth segment to be introduced is now here and that is the latest convenience store called FamilyMart which some might be familiar where many might have already came across. The very first store is situated at Wisma Lin Foo Yong in Jalan Raja Chulan, KL.

A Brief Intro to Family Mart

Rivals 7-11?

To be honest, the offering in FamilyMart ranges almost similar to a 7-11. But FamilyMart provides the feeling of premium with their product offering. You might have noticed as well that some 7-11 stores in Malaysia are undergoing upgrading providing better ready-to-eat food selection and increasing the image to gap itself from regular convenience store and to counter stores like FamilyMart. In the end, it is good news for all of us as consumers.

Expansion Concerns Upcoming Profit?

This part gets a little tricky. Its hard to determine how profitable each store is at the current moment and I’m pretty sure that this form of business is going to be profitable when the factor of economies of scale comes into play. I do not think that a single store could break-even operating in the first month itself and probably require like a chain of 5 or more to really synergize and soften distribution cost and capturing a bigger market share.

No doubt that store opening would affect QL’s profitability but for a operating EBITDA of RM372 million, we see that there’s enough room to buffer realizing losses from the stores.

On the other hand, we have nothing to worry about cash flow problems since the 1st store opening cost around RM400k (original estimate RM250k—350k) and that is not even close to 1% of annual operating cash flow that produces RM250 million.

The plan to open 60 stores in a year seems achievable and at maximum cost, 60 stores would cost approximately RM21 million or only 10% of annual cash flow. It is still early and no numbers were reported or estimated on the revenue or profit to be obtained from each store.

But based on 7-11’s financials, this is how we can estimate.

No of Stores = 2,001
Revenue = RM 2,050.823 M (RM 1.024 M per store)
Gross Profit = RM 85.640 M (RM 42,798 per store)
Net Profit =  RM  61.682 M (RM 30,825 per store)
If FamilyMart opens 60 this year and goes at this rate for 5 years (as planned)

Revenue = RM 1.024M – 20% (lack of financial services) +
10% ( net off premium)
= RM901,120 per store
Gross Profit = 4% of revenue = RM 34,044 per store
Net Profit = 2.5% of revenue = RM 22,528 per store

This sums up to an estimate of RM 1.35 million in profit one year from now! But a RM1.35 million increase in net profit is only 0.5% of what QL is generating now. But looking at the bright side, stability in terms of store expansion would pave a new path for QL and the ability for them to integrate their existing business into providing the products to be sold in store.

(photo credit to Says.com)

QL reported its Q2 2017 earnings and we were quite content with the reported figures although sell side analyst had higher targets.

We felt that the most important thing is to see a rise in revenue which meant more business dealing are underway. Much of this quarter’s cost came from depreciation expenses which is a good sign but margins are affected quite a bit this time round.

Overall not much to talk about and we hope that when the marine products manufacturing comes back with the capabilities of producing previous performance, we should be able to see them registering higher profits soon!

Like our page to get more these https://www.facebook.com/omightycap/
Make the next post easily visible from your Facebook!

You can visit us at http://omightycap.wordpress.com