SINCE early this year, locally listed poultry firms have attracted the attention of international food players. However, it appears that DBE Gurney Resources Bhd, which has been in the red for the past 10 years, remains an unloved counter.

In January, Indonesian tycoon Anthoni Salim — who is the chairman of Salim Group, one of the nation’s largest conglomerates with interests in consumer food products — bought substantial stakes in CAB Cakaran Bhd. To date, he owns close to a 20% stake in the company.

In the same month, Japan’s largest meat packing company, NH Foods Ltd, picked up a 9% stake in Lay Hong Bhd before raising its stake to almost 23%.

While most poultry stocks have rallied strongly in the past five years, DBE Gurney’s shares have trended downwards. From 14 sen in January 2012, the stock declined to 9.5 sen in January 2013 before dropping further to eight sen in August 2014 and 5.5 sen in July 2015.

Year to date, DBE Gurney has fallen 18.18%. It closed at 4.5 sen last Thursday, giving the company a market capitalisation of merely 

RM39.3 million. In comparison, Lay Hong and CAB Cakaran have a market capitalisation of RM536.7 million and RM289 million respectively as their shares have risen 41% and 7% YTD.

To be fair, DBE Gurney has been busy with various activities this year. In February, it organised a media trip to its processing plant and factory in Lumut, Perak.

Two months later, it launched 

HARUMi, the country’s first halal-certified local fried chicken brand, created with Taiwanese expertise.

In fact, DBE Gurney has begun to recover. In its first quarter ended March 31, 2016 (1QFY2016), it reported a net profit of RM729,000 on revenue of RM28.52 million. The group had suffered losses since 2006 mainly due to the volatility in commodity prices and the rising cost of doing business. It recorded a net loss of more than RM10 million in FY2015 and FY2014.

The group is hoping HARUMi will help it return to the black in FY2016 and has set up more than 100 kiosks selling the fried chicken in Perak, Penang, Johor and the Klang Valley.

Group executive chairman Datuk Ding Chong Chow says 2016 is “definitely” the year of turnaround for DBE Gurney as HARUMi will provide it with stable income and a decent profit margin of more than 20%.

“We are optimistic about the earnings contribution of HARUMi. We will surely make a profit going forward and I think our share price should move up later,” he tells The Edge.

Ding points out that DBE Gurney posted losses in the past two years because live chicken prices were not stable while the cost of feedstock rose.

“In the past years, the price of corn, which makes up 50% of our feedstock, was as high as RM1,000 per tonne. It is now RM700 per tonne, which is favourable to us,” he explains.

DBE Gurney is a fully integrated poultry firm with a feedmill production capacity of 9,500 tonnes per month and six breeder farms producing 100,000 chickens a year.

It also operates six sets of incubators that generate 12 million hatching eggs a year, 11 broiler farms that produce 10 million chickens a year as well as a factory that has the capacity to process 18 million chickens a year.

Ding says DBE Gurney is banking on HARUMi, which is now its second largest off-taker after fast-food restaurant chain KFC, to shore up its business. “Currently, 60% of our [poultry] products are being supplied to KFC while HARUMi is expected to take up about 20% to 30%. As it grows, we hope HARUMi can become our single largest client in the future.”

Group managing director Datuk Alex Ding Seng Huat tells The Edge that he sees better days ahead for DBE Gurney as the company can now take control of its profit margin.

“Before, we used to do more of fresh chicken and frozen chicken, which are largely commodities. There was no branding and everybody was competing on the pricing. That’s why we ventured into the fried chicken business through HARUMi, so that we can have our own brand and set our own price,” he says.

On July 20, DBE Gurney launched a dedicated entrepreneur development programme as it is planning to open up to 1,000 HARUMi fried chicken kiosks in the next 12 months by offering franchise opportunities.

It will provide ready-to-operate kiosks and supply marinated chicken products to licensees under the programme. It is now on track to achieving its target of 500 kiosks by the end of this year.

“We will return to black this year because with more kiosks, we will be selling more chicken,” says Alex.

He highlights that DBE Gurney’s stock is now trading below its net tangible asset of seven sen a share as at March 31 and at a price-to-book value of 0.6 times.

“The market does not actually reflect the real value of our company. I think we should be valued at our NTA level but we are now about 50% lower than that,” says Alex. “We already turned around in 1Q and if we can maintain that in 2Q and the remaining quarters, our share price will come back,” he reasons. 

Source: http://www.theedgemarkets.com/en/node/295791