There are 'real' (non-rent-seeking) corporate heroes

There are 'real' (non-rent-seeking) corporate heroes

By: 
Tong Kooi Ong
25/01/19, 11:09 am

SINGAPORE (Jan 28): Pretenders to the throne, please be seated. Last week, I wrote about some of our public- and private-sector successes in embracing technology and delivering quality services efficiently and effectively. This proves that Malaysians have the capability, given the right environment.

I truly hope that we will see greater concerted efforts by the government to cultivate entrepreneurship among young Malaysians — by ensuring equal opportunity through regulatory frameworks that will dismantle monopolies and rent-seeking proclivities while promoting a level playing field and fair competition.

Malaysian companies can succeed and not just at home. We can compete effectively against regional and global peers. A good example would be QL Resources, a homegrown company that has done very well and in industries that are extremely competitive, no less. Incidentally, QL was chosen as The Edge Billion Ringgit Club Company of the Year in 2011. The company was listed on Bursa Malaysia in March 2000 with a market capitalisation of RM100 million. Today, it is worth more than RM11 billion ($3.6 billion). That is equivalent to a compound annual growth rate (CAGR) of nearly 30% in an 18-year period.

QL truly is a rags-to-riches story and should be an inspiration to all budding entrepreneurs. It is living proof that success can be had with imagination and innovation, determination and hard work.

The business started as a small family endeavour, collecting seashells from nearby beaches — founder Chia Song Kun is from a family of fishermen — and selling them to poultry feed millers (for their calcium). From there, the business expanded, brick by brick, vertically (upstream and downstream) and horizontally as well as geographically.

For instance, the marine products division went from collecting and selling seashells and, later, fish and prawn (aquaculture farming and deep-sea fishing) to value-added products such as fishmeal and surimi (fish paste) and further processing it into chilled and frozen consumer food (fish balls, fish cakes, crab rolls/chunk, seafood tofu and so on) as well as seafood snacks.

The latter are sold under house brand names such as Mushroom, Suria, OceanRia and Ika’s, available wholesale and retail in hypermarkets. Its most recent venture, the FamilyMart chain of convenience stores, fits right in with its foray into the front-facing consumer food business. Many of the products sold in the stores are sourced from its own businesses.

From the trading and distribution of animal feed, the company diversified into poultry farming, with broiler, breeder and layer operations. The palm oil business expanded from crude palm oil milling to oil palm plantations in Sabah and East Kalimantan, Indonesia.

Today, QL is among the largest fishmeal, surimi and egg producers in the Asean region, with marine and poultry operations in Malaysia, Indonesia, Vietnam and China. Its wide range of consumer foods is exported worldwide, across Asia, Europe and North America.

All of QL’s businesses operate under extremely challenging business environments, with segments of the industries having relatively low barriers to entry. But its success and track record is evidence that QL has managed to extract maximum returns through ingenuity, integration, scale, productivity and strong execution.

Another home-grown success story, one that is absent of patronage and economic rent seeking, is Muhibbah Engineering. The company has competed successfully against larger global peers in securing high-profile projects all over the world.

For instance, it completed the RM2.2 billion catering facilities contract at Doha International Airport and is working on three other contracts to construct economic zones for the Qatar government at a total value of RM708 million.

Muhibbah’s construction and cranes divisions currently have a combined order book of RM1.85 billion, of which 66.4% is from Malaysia, 16.6% from the Middle East (mainly Qatar) and 14.8% from other Asia-Pacific countries.

Founded in 1972, Muhibbah has evolved from being a small local contractor to a global player, with a crane manufacturing arm that has supplied some of the world’s tallest and most iconic buildings and a stake in Cambodia’s airport operations that provides steady income.

InsiderAsia was the first research house to extensively cover the stock and recommend a “buy” in September 2005 when its market cap was only RM100 million. Today, its market cap is RM1.34 billion, representing a CAGR of 22% over the last 13 years.

From 2004 to 2017, net profit has grown from just RM8 million to RM132 million. Muhibbah also won three awards at the recent The Edge Billion Ringgit Club Awards 2018.

Over the years, it has restrategised from being a general contractor to a specialist in three main areas: marine, oil & gas (O&G), and airport, buildings and infrastructure.

In 2013, Muhibbah was awarded a Petronas licence to bid for projects, and it has since successfully won a number of jobs, including for the RAPID, or Refinery and Petrochemical Integrated Development, project in Johor.

Muhibbah’s crane manufacturing arm, Favelle Favco, derives 72% of its sales overseas and has five manufacturing plants in four continents. The cranes complement the group’s construction activities. They are used in O&G installations as well as many of the world’s most iconic buildings such as the Burj Khalifa, KL 118 Tower, Shanghai Tower, One World Trade Centre and Taipei 101.

A jewel in Muhibbah’s crown is its 21% stake in the concessions for the operation of three international airports in Cambodia, in partnership with French conglomerate Vinci. The airport concessions, in Phnom Penh, Siem Reap and Sihanoukville, will run until 2040 and provide strong steady incomes. The airports enjoy double-digit annual passenger arrival growth, with 8.8 million passengers in 2017. Passenger arrivals for the nine months to September 2018 rose 21% y-o-y to 7.6 million.

I believe the lesson is that Malaysian private enterprises are more than capable, provided they are allowed to operate in a fair and conducive environment, absent of vested interest intervention through the government.

I say this again: There are opportunities even in the most cut-throat of businesses, and with vision, creativity, perseverance and hard work, success is achievable. I have highlighted two companies that are living proof of this. I do not doubt that there are many similar success stories, and yet others perhaps in the early stages as QL and Muhibbah were 15 to 20 years ago.

Stocks in my Global Portfolio ended flattish for the week. Total returns now stand at -13.3% since inception. This portfolio is underperforming the MSCI World Net Return Index, which is down by a lesser 4% over the same period.


Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the report

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