KUALA LUMPUR (April 12): QL Resources Bhd's share price slipped 2.25% to RM4.34 from its peak of RM4.48 this morning, following some analysts saying the contribution from its exclusive rights with Japan's FamilyMart is "minimal" in near term due to the industry's intense competition.

QL Resources saw its share prices rise four sen to RM4.48 this morning, but the momentum failed to sustain amid selling pressure. At 10.40am, the counter was still nine sen or 2.03% lower at RM4.35, with 134,400 shares traded.

Yesterday, QL Resources announced to the bourse the group is diversifying into the convenience store business by partnering the world's second largest convenience store operator, FamilyMart. Both parties plan to open as many as 300 stores within five years.

Analysts are generally neutral on the deal, and maintained earnings forecast for the group.

Kenanga Research said in a report today that it is wary of the competitive and challenging business landscape as the top two largest competitors, 7-Eleven Malaysia and Bison Consolidated, are currently operating 1,944 and 247 stores respectively.

"Both have lined up aggressive expansion plan to consolidate market share. Thus, we believe strong efforts are required from QL Resources as a newcomer to penetrate and grab market share in the convenience store industry," Kenanga added.

Based on RHB Research Institute estimates, each store stands to generate up to RM800,000 in sales with an estimated profit-before-tax margin of 4% to 7% .

"Similar to management expectations, we also expect contributions to be positive over the medium term as convenience stores typically have a gestation period of one year. Therefore, we expect an insignificant impact to FY18 earnings as well, beyond management's expectation of FY17," the research house highlighted in a note.

Maybank Investment Bank Research also noted it normally takes up to three years for a convenience store in Malaysia to break even, factoring in initial start-up costs and sales ramp-up.

Over the longer term, Maybank opined that positive accretion to the group would very much depend on FamilyMart's ability to differentiate itself from existing competitors, such as by offering more food and fresh food lines which carry better margins.

Kenanga maintained its "underperform" call on QL Resources with a target price (TP) of RM4.16, while RHB holds "neutral" call on the counter with a TP of RM4.21; Maybank maintains "hold" with TP of RM4.20.