This article first appeared in The Edge Financial Daily, on January 18, 2016.
KUALA LUMPUR: DBE Gurney Resources Bhd, which bagged a one-year contract to supply poultry products to Kentucky Fried Chicken (KFC) last November, expects to return to the black in the financial year ending Dec 31, 2016 (FY16) by focusing on poultry processing and its new food and beverage (F&B) franchising business, which will provide better margins.
The company has also stopped supplying live poultry to focus on processed poultry products since the start of FY16.
“We will stop supplying live chickens. The profit margin for live chickens is thin as the selling price is volatile. Sometimes, we don’t have any margin at all. It’s just a volume game,” DBE Gurney managing director Alex Ding Seng Huat told The Edge Financial Daily in a recent interview.
He said the company had been incurring losses in the past few years, as its feed mill and processing plant in Setiawan, Perak, was not running at full capacity — mainly due to the low average selling price of chickens, especially the live chicken segment.
The company’s sales ratio is now 50% live chickens and 50% processed poultry products, said Ding.
As it halts the sale of live chickens, all its chickens will be going straight to its processing plant in Setiawan.
“There won’t be a decline in revenue. In fact, there will be a growth in revenue as we will supply more value-added products, such as marinated products, which fetch a higher value,” Ding assured.
The KFC job to supply poultry products to KFC restaurants in Perak (52) and Selangor (25), started on Jan 1, is expected to bring in about RM50 million in revenue for the group in FY16, according to DBE Gurney’s previous bourse announcement.
“We have been providing chickens to KFC, but this is the first time we [have] clinched a big contract like this. They have asked us to supply for other states as well, but I think we should not depend on one single large customer,” said Ding.
The RM50 million turnover expected is about 31.83% of its full-year revenue of RM157.08 million in FY14. Under the agreements inked, there is also an option to renew the deals, according to terms to be mutually agreed on.
In a note dated Nov 19, a local investment bank said if the contract with KFC can turn long-term, DBE Gurney may turn around in the near future.
Besides getting more customers locally for its processed poultry segment, DBE Gurney is also looking at exporting its premium poultry products overseas, and is eyeing the Chinese, Japanese and Kazakhstan markets.
“Our chicken has reached export standards. We have already started the application and are waiting for approvals from the authorities,” Ding shared, adding that DBE Gurney would be the first Malaysian company to export chickens to China if it gets the green light to do so.
The company currently also has a feed mill in Setiawan. At full capacity, the feed mill can produce 114,000 tonnes per year, while its processing factory can slaughter 60,000 birds per day.
The company currently has six breeder farms with total capacity of 100,000 birds per year, 11 broiler farms which can supply 10 million chickens per year, and a hatchery with six sets of incubators that can produce up to 12 million eggs per year.
Meanwhile, DBE Gurney plans to venture into the F&B business by creating its own fried chicken franchise business under the brands Gurney Fried Chicken and Harumi in FY16.
The company aims to have 30 restaurants, 3,000 kiosks and 300 mobile trucks in the next three years through franchising, according to Ding.
“For Gurney Fried Chicken, we will be partnering with a Taiwanese fried chicken company, which currently owns about 600 restaurants [in Taiwan]. They will help us develop our own brand and provide us with the technology.
“We are finalising the details of the partnership. We hope to conclude that soon,” Ding revealed, adding that the company plans to open its first fast-food restaurant in Perak by mid-2016.