Friday 22 February 2013

QL Resources - Slower growth for FY13


QL Resources has always delivered earnings growth and expansion plans. However, its management is now guiding for a lower PAT growth of 5-10% for FY13 although it expects the growth to be normalised back to the higher 10-15% for FY14. The lower growth for FY13 is likely due to the current lower CPO prices and the margin compression at its livestock division due to the higher commodities prices. As a result of this, we expect the coming 3Q13 results to remain weak with a recovery seen only from 4Q13 onwards. Our estimate of RM156.4m in net profit for FY13 hence appears to be on the high side and could be revised down  by  us  as  the  actual  results  come  in  (1H13  earnings accounted for only 44% of our current estimate above thus far). At this juncture, we are maintaining our forecasts for FY13-14E pending the results announcement to be released today in the evening. We are maintaining our TP of RM3.50 for now as well based on an unchanged FY13E PER of 18.5x. 

3Q13 results should remain weak. QL will tentatively release its 3Q13 results this evening. We believe the results should be flattish compared to the previous quarter, although its 3Q is usually better than the first two quarters. We are expecting better marine earnings to mitigate the poorer results from the livestock and plantation divisions (see overleaf for further details). 4Q13 should be the strongest quarter, assuming the livestock division will improve by then. Nevertheless, our estimate of RM156.4m in net profit for FY13 remains on the high side and could be revised down by us as the actual 3Q13 results come in this evening.

FY14 should be better. QL is targeting for a normalised PAT growth rate of 10-15% in FY14 as compared to the 5-10% growth expected for FY13. This double-digit growth would mainly be driven by the capacity expansions in both marine and livestock, which would achieve a better economy of scale, especially for its Indonesian  operation. Despite lower CPO prices, plantation earnings should nonetheless recover gradually from FY13 onwards buoyed by the growing maturity of its Indonesia plantations and the rising contribution from its associate, Boilermech as QL has increased its equity holdings here from 35% to 40%. Extrapolating from the RM4.8m contribution from the associate for FY12, the contribution should rise by 15% to RM5.5m, assuming just a flat earnings growth in Boilermech. 

Expansion plans. Tapping on the growing demand, QL is looking forward to increase its surimi and surimi-based product capacities by 33% and 50% respectively by 4Q14 from now. QL is also investing in prawn aquaculture in Kudat, Sabah with a planned CAPEX of RM50m spanning over the next four years in collaboration with other ETP projects there as well. There are also more plans for its marine as well as other divisions (see overleaf for further details).

Source: Kenanga

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