QL Resources (QLG MK, BUY, FV: RM3.64, Last close: RM3.15)

Following our recent meeting with  management, we are optimistic that QL Resources will continue to deliver solid earnings growth in line with its on-track expansion in the ASEAN region. We are expecting the group’s Indonesia and Vietnam operations to start contributing in FY13. Maintain BUY with a FV of RM3.64, given its solid performance and resilient business nature.

Still rocks. QL Resources transformed from a livestock feed trading company (that was complemented by its smaller fisheries and palm oil businesses) into a leading marine and poultry egg producer (complete with a fast-growing palm oil business) over the years. With exposure to three sustainable basic food industries, its strong business model has enabled QL to deliver sterling results on a consistent basis. Over the years, the company has expanded its operations through upstream/downstream integration, innovation and acquisition.

Regional expansion bearing fruits.  Going forward, we believe the earnings excitement will largely come from its regional exposure in Indonesia and  Vietnam. On the marine side, QL is adding another 5k tonnes p.a. capacity to its current surimi and fishmeal production facilities in Surabaya, increasing the overall production capacity to 10k tonnes p.a. by end-FY13. Also, we are expecting contributions from Indonesia and Vietnam’s poultry operations to kick in from FY13 onwards, given that the expansions are all on track. As for the palm oil division, the 20k ha plantation and new CPO mill in Indonesia will undoubtedly bring the company to the next level.

Defensive in nature.  As QL is involved in the basic food industry where demand is resilient even during economic slowdowns, we are confident that the company’s outlook remains promising. With  QL venturing into  Asean countries with growing populations such as Indonesia and Vietnam,  such regional expansions could open up new and profitable markets that bode well for the company’s future growth.

Maintain BUY. Our FV of RM3.64 is based on 19x CY12 EPS. Given the recent share price retracement (which was largely due to the market correction), we see this as a good opportunity to BUY QL shares. This stock is one of our Top 2012 Buys in view of its highly defensive nature and aggressive overseas expansion strategy.

Source: OSK188