QL Resources (QLG MK, BUY, FV RM3.46, Last price: RM3.16)

QL’s  full-year earnings were well within  consensus and our estimates. Revenue and net profit  were up by 9.6% and 6%  respectively, thanks to the resilient performance across all divisions. Margins trended lower as the fatter margin from the POA division was offset by the weaker margins from MPM and ILF divisions. Moving forward, the company will add a new frozen surimi factory in Hutan Melintang and the additional capacity for its surimi plant in Indonesia is expected to come on stream by Sept 2012. Imputing a higher tax rate, we revise down our FY13 earnings by 5.1%. We continue to like QL given its ASEAN-wide expansion and solid earnings. Maintain BUY with a FV of RM3.46.

A fruitful year.  QL’s FY12 results were in line with consensus and our full-year estimates, registering a revenue and net  profit of RM1946.9m (+9.6% y-o-y) and RM132.1m (+6.0% y-o-y) respectively. All three divisions, including integrated livestock farming (ILF), marine product manufacturing (MPM) and palm oil activities (POA),delivered a solid performance. The ILF division’s turnover surged by 12.5% y-o-y due to higher farm product prices and higher unit prices for animal raw materials. The revenue for the POA division ticked up  by 7% y-o-y on the back of higher CPO prices (current year average stands at RM3,150 vs RM3,000  in 2011). The higher contribution from surimi-based operations in Malaysia as well as the maiden contribution from Indonesia’s surimi operations led to a 5% y-o-y revenue growth in the MPM division.  The tax rate was higher at 19.3% compared to 16.8% last year.

Contraction in margins. EBITDA and PBT margins continued to erode by 20bps and 10bps y-o-y respectively as the higher margin from the POA division was offset by the weaker margins from the MPM and ILF segments. POA’s PBT margin trended higher from  1.5% to 3.7% y-o-y, mainly driven by higher distribution from own estates and associates coupled with favorable CPO prices. Meanwhile, the lower PBT margin for the MPM division (13% vs 14.1% y-o-y) was due to a lower fish catch in 1H. The ILF margin declined from 9.3% to 8.8% y-o-y, as intense competition eroded the margin for feed raw material trade.

Maintain BUY. After applying a higher tax rate and introducing our FY14 numbers, we trim our FY13 forecast by 5.1%. QL is still our top consumer pick as we  expect its regional fishery, poultry and palm oil operations to contribute positively in FY13. Maintain BUY with a new FV of RM3.46, which is pegged to 19x CY12 EPS.

Source: OSK