Thursday, 7 March 2013

QL Resources - En route to China!

News      QL Resources (“QL”) announced that it had acquired a 100% equity interest in Zhongshan True Taste Food Industrial Co. Ltd (“ZC”) through its wholly-owned subsidiary, QL Lian Hoe (S) Pte Ltd for a cash consideration of RMB18.8m or RM9.4m from Li Peishan.

ZC is principally involved in the business of producing various kinds of quick-frozen minced fish fillets, other flavoured foods, purchasing, processing and selling agricultural products in China.
The rationale of the acquisition is in line with QL’s expansion plan to venture into the China market for its marine products manufacturing division.

Comments     The acquisition is expected as it was mentioned in our report dated 22 Feb 2013, and is mainly for the aim of penetrating the huge hypermarket base in China.

As at Dec 2012, QL has cash & balances and borrowings of RM101.6m and RM741.9m respectively. Given the low investment cost of RM9.4m, it will not have any material impact to the balance sheet and the net gearing ratio of 0.74x.

Assuming a similar ROA of 7.9% by benchmarking it to QL’s own ROA, ZC should potentially produce a return of RM0.7m per annum. Its contribution to QL would be minimal at this juncture.

Outlook     Nevertheless, given the huge market in China, it would be a good opportunity for QL to explore the market through this low-cost acquisition to build a strong foundation for its future growth there.

Forecast     As we do not expect any material contribution from ZC to QL’s earnings, we are thus maintaining our FY13-14E NPs of RM138m-RM157m

Rating     Maintain OUTPERFORM

Valuation     Our TP remains unchanged at RM3.40 based on a FD FY14E PER of 18.5x.

Risks      The global economic and weather uncertainties.

Source: Kenanga

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