QL Resources - Onward to Better Quarter

  BUYFAIR VALUE: MYR4.05

QL’s 1QFY13 results were below consensus but well within our estimates.  Revenue and net profit grew by 8.8% and 12.9% respectively, mainly due to better performance from the MPM and ILF divisions. Margins widened as the weaker showing from its POA segment was compensated by the better margins from MPM and ILF. We see stronger contributions arising from: i) expansion of its new surimi line in Surabaya commencing in September, and ii) the poultry operation in Indonesia. Maintain BUY, with a higher FV of RM4.05, on rolling over our valuation to CY13.

A good quarter. The company’s 1QFY13 revenue and earnings expanded by 8.8% to RM494.4m and 12.9% to RM31.4m respectively. We deem the results in line although the net profit only represented 19.8% of our full-year forecast as 1Q is a seasonally weaker quarter, while contribution from its expanded Surabaya surimi plant will only come in at the end of 2Q. The encouraging topline growth was largely driven by better revenue from the marine product manufacturing (MPM) and integrated livestock farming (ILF) divisions. MPM sales recorded sterling growth of 29.9% y-o-y on the back of higher contribution from the company’s Surabaya fishery operation as well as improved fish landing in Sabah while the turnover in the ILF segment went up by 21% y-o-y due to higher volume of feed raw material and better contribution from its Indonesian poultry business. In contrast, revenue from palm oil activities (POA) declined by 35.7% due to lower contribution from QL’s own estates, as well as lower FFB processed and CPO prices (RM3,195 vs RM3,332 y-o-y). Q-o-q, revenue from POA and ILF dipped 2.6% and 5.5% respectively due to the lower volume of FFB processed and weaker feed raw material sales. Meanwhile, MPM sales climbed 12.1% q-o-q, mainly attributed to the seasonally better fish landing in the Surabaya and the Endau region.

Better margins. EBITDA margin improved from 11.6% to 12% y-o-y while PBT margin expanded by 0.4% to 8.4%. The weaker PBT margin in the POA segment (4.6% vs 6.9% y-o-y) was offset by the higher margins from the MPM (12.6% vs 10.7% y-o-y) and ILF (7.4% vs 7.3% y-o-y) segments. We expect the ILF margin to remain flat or slightly better as the higher margins from feed raw materials will partially mitigate the margin erosion from the poultry operation going forward against the backdrop of higher corn and soybean prices.

Maintain BUY. QL, our top buy in the consumer sector, is a relatively safer bet amid the economic uncertainty, owing to its earnings track record and defensiveness. We are raising our FV to RM4.05 as we roll over our valuation from CY12 to CY13 EPS based on 19x PER.

Source: OSK